Frictions_JFM_August2011_FinalVersion.pdf (381.95 kB)
Primary market characteristics and secondary market frictions of stocks
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.
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Publication status
- Published
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- Accepted version
Journal
Journal of Financial MarketsISSN
1386-4181Publisher
ElsevierExternal DOI
Issue
2Volume
15Page range
286-327Department affiliated with
- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2022-02-22First Open Access (FOA) Date
2022-02-22First Compliant Deposit (FCD) Date
2022-02-22Usage metrics
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