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Evolution of integer price clustering of IPOs in the aftermarket

Author

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  • Qiming Wang

Abstract

Purpose - – The purpose of this paper is to, using a large sample of NASDAQ initial public offerings (IPOs), examine the evolution of integer price clustering of IPOs in the aftermarket trading. Design/methodology/approach - – Consistent with Harris’s (1991) costly negotiation hypothesis, clustering on integer prices is a positive function of price level and various stock valuation uncertainty proxies, and it is a negative function of trading activities for IPOs and seasoned stocks. Findings - – It was found that, after controlling for price level, daily return volatility, number of trades, trading volume, number of market makers and the effect of price support, the integer price frequency of IPOs converge to that of seasoned stocks immediately, and whether IPOs have integer offer prices does not affect their integer price clustering in the aftermarket trading after the effect of price support is controlled for. Originality/value - – These results suggest that the IPO pricing process significantly reduce the differences between integer priced IPOs and non-integer priced IPOs in pre-offering valuation uncertainty.

Suggested Citation

  • Qiming Wang, 2014. "Evolution of integer price clustering of IPOs in the aftermarket," Nankai Business Review International, Emerald Group Publishing Limited, vol. 5(4), pages 365-381, October.
    • Handle: RePEc:eme:nbripp:v:5:y:2014:i:4:p:365-381
    DOI: 10.1108/NBRI-01-2014-0008
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    More about this item

    Keywords

    IPOs; Costly negotiation; Integer price frequency; Price clustering; G12; G14;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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