Effects of Price Stabilization in IPOs on Long-run Liquidity

Rodrigo Andrade Tolentino () and Antonio Gledson De Carvalho ()
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Rodrigo Andrade Tolentino: Banco Itau-Unibanco
Antonio Gledson De Carvalho: FGV-EAESP

Brazilian Review of Finance, 2010, vol. 8, issue 3, 307-328

Abstract: This article investigates the effect of the aftermarket short covering (ASC) carried out by the underwriter during the price stabilization period on long-term liquidity. For nearly 10% of the IPOs in our sample that were stabilized, the ASC represented more than 40% of the whole trade volume during the first month after the IPO; for 60% of the IPOs, more than 20%; and for only less that 20% of the IPOs, below 10% of the trade. We conjecture that because liquidity is a persistent characteristic of stocks, the effect of the ASC on liquidity may be last longing. In fact, we show that the ASC has a positive effect on liquidity over the 6 months subsequent to the stabilization period. This positive relation holds true even after controlling for many variables considered important to explain liquidity by previous authors, and the instrumentalization of the ASC.

Keywords: liquidity; price stabilization; aftermarked short covering; IPO; liquidity; price stabilization; aftermarked short covering; IPO (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:8:y:2010:i:3:p:307-328

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