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The determinants of cross-sectional liquidity in the IPO aftermarket

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  • Yen-Sheng Lee

Abstract

This article examines the determinants of cross-sectional liquidity in the Initial Public Offering (IPO) aftermarket. Previous literature suggests that liquidity trading, information asymmetry, the extent of estimation uncertainty and heterogeneity of opinion are related to share turnover of seasoned stocks, whereas very few papers examine the factors of liquidity of newly listed firms. Because IPO stocks typically experience a volatile trading period following the IPO issuance date, I draw on the literature on trading activities and IPO firms and explore the sources, if any, of IPO liquidity during the period of 1995 through 2005. I also examine IPO attributes, such as the presence of venture capital and the number of underwriters in a syndicate. The results of random effects models suggest that liquidity trading, the mass of informed agents and certain IPO attributes play a role in explaining IPO trading activity. In contrast to previous studies on the trading activity of seasoned stocks, I find that differences of opinion and estimation uncertainty about an IPO firm have little effect on IPO liquidity. My findings contribute to the understanding of determinants of IPO liquidity.

Suggested Citation

  • Yen-Sheng Lee, 2012. "The determinants of cross-sectional liquidity in the IPO aftermarket," Applied Financial Economics, Taylor & Francis Journals, vol. 22(14), pages 1161-1173, July.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:14:p:1161-1173
    DOI: 10.1080/09603107.2011.633890
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