IDEAS home Printed from https://ideas.repec.org/a/brf/journl/v8y2010i4p443-468.html
   My bibliography  Save this article

Determinants of Price Stabilization in IPOs

Author

Listed:
  • Antonio Gledson de Carvalho

    (FGV-EAESP)

  • Douglas Beserra Pinheiro

    (Banco Itaú Unibanco)

Abstract

In the most common mechanism for price stabilization in IPOs, the underwriter distributes stocks in excess of what was contracted (overallotment) and eventually covers this short naked position by purchasing stocks in the secondary market (Aftermarket short covering , ASC). This mechanism can be used to avoid price drop or price volatility. This article provides a description of such activity in Brazil. We investigate the determinants of price stabilization in three aspects: amount overallotted, occurrence of ASC and its intensity. Our results indicate that price stabilization is an important activity in Brazilian IPOs and quite similar to that occurring in the US. The three different aspects of price stabilization have different determinants. The amount overallotted depends only on the ex-ante demand conditions. ASC occurs mostly on IPOs characterized by high risk, low ex-ante demand and carried by reputable underwriters. The intensity of the ASC increases with the riskiness and decreases with the ex-ante demand. None of the existing models fully explain these results.

Suggested Citation

  • Antonio Gledson de Carvalho & Douglas Beserra Pinheiro, 2010. "Determinants of Price Stabilization in IPOs," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(4), pages 443-468.
    • Handle: RePEc:brf:journl:v:8:y:2010:i:4:p:443-468
    as

    Download full text from publisher

    File URL: http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/2553/2130
    Download Restriction: no
    File URL: http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/2553
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    IPO; price stabilization; aftermarket short covering; greenshoe;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:brf:journl:v:8:y:2010:i:4:p:443-468. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcio Laurini (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.