Liquidity and initial public offering underpricing |
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Authors: | TeWhan Hahn James A Ligon Heather Rhodes |
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Institution: | 1. Department of Economics and Finance, Auburn University Montgomery, P.O. Box 244023, Montgomery, AL 36124-4023, United States;2. Department of Economics, Finance & Legal Studies, The University of Alabama, P.O. Box 870224, Tuscaloosa, AL 35487-0224, United States |
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Abstract: | Using eight measures of liquidity, and addressing the potential endogeneity of initial returns, we find underpricing generally increases the secondary market liquidity of IPOs over the first year of trading, irrespective of the horizon over which liquidity is measured. For two model specifications over the eight measures, fifteen regressions display signs consistent with higher underpricing increasing liquidity and thirteen of these are statistically significant. We also find higher initial returns are significantly negatively correlated with the probability of informed trade. Furthermore, the liquidity effects of underpricing survive the lockup date, suggesting they are not quickly dissipated. |
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Keywords: | G10 G12 G24 |
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