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Effects of Price Stabilization in IPOs on Long-run Liquidity

Author

Listed:
  • Rodrigo Andrade Tolentino

    (Banco Itau-Unibanco)

  • Antonio Gledson De Carvalho

    (FGV-EAESP)

Abstract

This article investigates the effect of the aftermarket short covering (ASC) carried out by the underwriter during the price stabilization period on long-term liquidity. For nearly 10% of the IPOs in our sample that were stabilized, the ASC represented more than 40% of the whole trade volume during the first month after the IPO; for 60% of the IPOs, more than 20%; and for only less that 20% of the IPOs, below 10% of the trade. We conjecture that because liquidity is a persistent characteristic of stocks, the effect of the ASC on liquidity may be last longing. In fact, we show that the ASC has a positive effect on liquidity over the 6 months subsequent to the stabilization period. This positive relation holds true even after controlling for many variables considered important to explain liquidity by previous authors, and the instrumentalization of the ASC.

Suggested Citation

  • Rodrigo Andrade Tolentino & Antonio Gledson De Carvalho, 2010. "Effects of Price Stabilization in IPOs on Long-run Liquidity," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(3), pages 307-328.
    • Handle: RePEc:brf:journl:v:8:y:2010:i:3:p:307-328
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    Cited by:

    1. Mohammad Kheiry & Sima Golozar & Ali Amiri, 2017. "An Assessment of Valuation Methods of Stock Initial Public offerings on Tehran Stock Exchange," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(4), pages 466-490, April.

    More about this item

    Keywords

    liquidity; price stabilization; aftermarked short covering; IPO; ; liquidity; price stabilization; aftermarked short covering; IPO;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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