Primary market characteristics and secondary market frictions of stocks

Rodney Boehme and Gönül Çolak

Journal of Financial Markets, 2012, vol. 15, issue 2, 286-327

Abstract: We analyze the primary market characteristics and the secondary market trading frictions of new stocks. IPOs issued in hot markets, with low offer price, low-reputation underwriters or no VC backing face higher liquidity frictions, higher information constraints, and worse short-sale constraints. Underpriced IPOs are more liquid and more recognizable, but they have higher idiosyncratic risk and higher short-sale constraints. Also, we find an interesting time trend in the evolution of the new stocks' trading frictions: the mean-reversion of an average IPO stock toward a typical seasoned stock takes more than a few years. We propose a quality-based explanation for these findings.

Keywords: Idiosyncratic risk; Information uncertainty; Initial public offerings; Liquidity; Market frictions; Short-sale constraints (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:15:y:2012:i:2:p:286-327

DOI: 10.1016/j.finmar.2011.11.001

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