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The Existence and Effectiveness of Price Support Activities in Germany: A Note

Author

Listed:
  • Oehler, Andreas
  • Rummer, Marco
  • Smith, Peter N.

Abstract

The overallotment or greenshoe option has become very popular in the German IPO market since its introduction in 1995 and is nowadays an important tool to stabilize IPOs or to issue additional shares in the case of excess demand. Besides providing evidence for the prevalence of price support activities by the underwriter we show that the greenshoe option which seems to be used to support overpriced offerings in the secondary market is not very effective in propping up aftermarket prices. Additionally, the market seems to decide quite early which firms are ?losers? and which are ?winners? in terms of stock market performance.

Suggested Citation

  • Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "The Existence and Effectiveness of Price Support Activities in Germany: A Note," Discussion Papers 30, University of Bamberg, Chair of Finance.
  • Handle: RePEc:zbw:bamfin:30
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    References listed on IDEAS

    as
    1. Daniel Asquith & Jonathan D. Jones & Robert Kieschnick, 1998. "Evidence on Price Stabilization and Underpricing in Early IPO Returns," Journal of Finance, American Finance Association, vol. 53(5), pages 1759-1773, October.
    2. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    3. Hanley, Kathleen Weiss, 1993. "The underpricing of initial public offerings and the partial adjustment phenomenon," Journal of Financial Economics, Elsevier, vol. 34(2), pages 231-250, October.
    4. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    5. Schultz, Paul H. & Zaman, Mir A., 1994. "Aftermarket support and underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 35(2), pages 199-219, April.
    6. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    7. repec:bpj:zfbrbw:v:7:y:1995:i:1:p:45-68:n:5 is not listed on IDEAS
    8. Ruud, Judith S., 1993. "Underwriter price support and the IPO underpricing puzzle," Journal of Financial Economics, Elsevier, vol. 34(2), pages 135-151, October.
    9. Hegde, Shantaram P. & Miller, Robert E., 1989. "Market-Making in Initial Public Offerings of Common Stocks:An Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(01), pages 75-90, March.
    10. Reena Aggarwal, 2000. "Stabilization Activities by Underwriters after Initial Public Offerings," Journal of Finance, American Finance Association, vol. 55(3), pages 1075-1103, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Initial Public Offerings (IPO); Price Support; Overallotment Option;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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