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When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket
Abstract
This paper examines aftermarket trading of underwriters and unaffiliated market makers in the three‐month period after an IPO. We find that the lead underwriter is always the dominant market maker; he takes substantial inventory positions in the aftermarket trading, and co‐managers play a negligible role in aftermarket trading. The lead underwriter engages in stabilization activity for less successful IPOs, and uses the overallotment option to reduce his inventory risk. Compensation to the underwriter arises primarily from fees, but aftermarket trading does generate positive profits, which are positively related to the degree of underpricing.
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Citations
Cites
Stabilization, syndication and pricing of IPOs
Chowdhry, B., & Nanda, V. (1996) · The Journal of Financial and Quantitative Analysis · doi:10.2307/2331385 · Cited by 177
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CORWIN, S. A., & SCHULTZ, P. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00735.x · Cited by 412
Lazonick, W., & Mazzucato, M. (2013) · Industrial and Corporate Change · doi:10.1093/icc/dtt019 · Cited by 284
Shipilov, A. V., & Li, S. X. (2012) · Organization Science · doi:10.1287/orsc.1100.0568 · Cited by 152
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Metadata
- Authors
- Ellis, K., Michaely, R., & O'Hara, M.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2000-06
- Volume
- 55
- Issue
- 3
- Pages
- 1039-1074
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2013283193
- Cited by
- 510
- References
- 1
- FWCI
- 40.85
- Type
- journal article
- Language
- en
- Open access
- closed
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- Ellis, K., Michaely, R., & O'Hara, M. (2000). When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket. The Journal of Finance. https://doi.org/10.1111/0022-1082.00240
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
