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Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket?

Author

Listed:
  • Tamara Nefedova

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Giuseppe Pratobevera

    (University of Lugano and Swiss Finance Institute - University of Lugano and Swiss Finance Institute)

Abstract

We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutional investors are less likely to sell than buy through the lead underwriters. Consistent with investors hiding their sell trades, the asymmetry is the strongest in cold IPOs and it is limited exclusively to the first month after the issue. Contrary to the conventional view, the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters; institutions that sell shares through non-lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket, consistent with institutions breaking their laddering agreements. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Suggested Citation

  • Tamara Nefedova & Giuseppe Pratobevera, 2018. "Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket?," Post-Print hal-02108887, HAL.
  • Handle: RePEc:hal:journl:hal-02108887
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02108887
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    References listed on IDEAS

    as
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