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Impact of liquidity and information on the mispricing of newly public firms

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  • Joan Wiggenhorn
  • Jeff Madura

Abstract

We test whether the mispricing of newly public firms is affected by liquidity and information during the quiet period, from the end of the quiet period until the lock-up expiration date, and post lock-up. Liquidity is affected by the underwriter’s stabilization efforts during the quiet period and the founder’s ability to sell shares in the post-lockup period. Based on a sample of winner and loser events for more than 2,600 newly public firms during 1992–2001, the degree of under-or overreaction is conditioned on the period within the aftermarket following the IPO. We attribute the results to different liquidity and information effects among the three periods. Copyright Springer 2005

Suggested Citation

  • Joan Wiggenhorn & Jeff Madura, 2005. "Impact of liquidity and information on the mispricing of newly public firms," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(2), pages 203-220, June.
    • Handle: RePEc:spr:jecfin:v:29:y:2005:i:2:p:203-220
    DOI: 10.1007/BF02761554
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    References listed on IDEAS

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    1. Daniel J. Bradley & Bradford D. Jordan & Jay R. Ritter, 2003. "The Quiet Period Goes out with a Bang," Journal of Finance, American Finance Association, vol. 58(1), pages 1-36, February.
    2. Atkins, Allen B. & Dyl, Edward A., 1990. "Price Reversals, Bid-Ask Spreads, and Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(4), pages 535-547, December.
    3. Cox, Don R & Peterson, David R, 1994. "Stock Returns Following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance," Journal of Finance, American Finance Association, vol. 49(1), pages 255-267, March.
    4. Cao, Charles & Field, Laura Casares & Hanka, Gordon, 2004. "Does Insider Trading Impair Market Liquidity? Evidence from IPO Lockup Expirations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(1), pages 25-46, March.
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