Uninformed Trading and Information Uncertainty in the Post-IPO Market
Rahul Ravi ()
Additional contact information
Rahul Ravi: Department of Finance, John Molson School of Business, Concordia University, 1450 Guy Street, Montreal H3H 0A1, Quebec, Canada
Quarterly Journal of Finance (QJF), 2015, vol. 05, issue 01, 1-31
Abstract:
Underpricing in the initial public offering (IPO) market has been traditionally explained as a means of attracting liquidity traders. We find strong evidence suggesting that the intensity of trading coming from these uninformed traders and the rate of idiosyncratic information arrival play important roles in determining the level of adverse selection cost of trading in the post-IPO market. Timeseries analysis reveals that this cost is lowest immediately post-IPO and it increases monotonically in the first 8–12 weeks of secondary market trading. Order flow variability and the fraction of small trades (both proxies for the extent of uninformed trading) are at their highest in the immediate aftermarket and their levels decay for the next 8–12 weeks. Our results allude to the existence of a negative relationship between underpricing and the adverse selection problem in the post-IPO market, mediated by the intensity of uninformed trading.
Keywords: Initial public offering; information asymmetry; adverse selection cost of trading (search for similar items in EconPapers)
Date: 2015
References: View complete reference list from CitEc
Citations:
Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139215500160
Access to full text is restricted to subscribers
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:05:y:2015:i:01:n:s2010139215500160
Ordering information: This journal article can be ordered from
DOI: 10.1142/S2010139215500160
Access Statistics for this article
Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero
More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().