The Persistence of IPO Mispricing and the Predictive Power of Flipping

Laurie Krigman, Wayne H. Shaw and Kent Womack

Journal of Finance, 1999, vol. 54, issue 3, 1015-1044

Abstract: This paper examines underwriters' pricing errors and the information content of first‐day trading activity in IPOs. We show that first‐day winners continue to be winners over the first year, and first‐day dogs continue to be relative dogs. Exceptions are “extra‐hot” IPOs, which provide the worst future performance. We also demonstrate that large, supposedly informed, traders “flip” IPOs that perform the worst in the future. IPOs with low flipping generate abnormal returns of 1.5 percentage points per month over the first six months beginning on the third day. We show that flipping is predictable and conclude that underwriters' pricing errors are intentional.

Date: 1999
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https://doi.org/10.1111/0022-1082.00135

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:54:y:1999:i:3:p:1015-1044

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