Decimalization, IPO Aftermath and Liquidity
This paper investigates the effect of decimalization on the aftermarket trading of NYSE-listed IPOs. We find that after decimalization, the relation between spreads and underpricing becomes negative, which suggests that the benefits from the increased price competition accrue more to hot IPOs. The d...
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sg-smu-ink.lkcsb_research-17252010-09-23T06:24:04Z Decimalization, IPO Aftermath and Liquidity Charoenwong, C. DING, David K. Thong, Tiong Yang This paper investigates the effect of decimalization on the aftermarket trading of NYSE-listed IPOs. We find that after decimalization, the relation between spreads and underpricing becomes negative, which suggests that the benefits from the increased price competition accrue more to hot IPOs. The depths are generally smaller post-decimalization because of the higher probability of front-running that aggravates the costs of adverse selection and limit order submission. In addition, we show that underwriters still provide price support but are only willing to cover the initial short position if it is still profitable post-decimalization. We also find that decimal pricing does not change the flipping strategy of institutions for cold IPOs as flipping is likely bounded by underwriter price support and shares allocation. Institutions, however, tend to flip more hot IPOs in the post- rather than pre-decimalization period, suggesting that the cost of flipping is much lower for those share prices with a substantial run-up during aftermarket trading. 2005-06-01T07:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/726 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Decimalization IPO Underpricing Liquidity Aftermath Finance and Financial Management Portfolio and Security Analysis |
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Decimalization IPO Underpricing Liquidity Aftermath Finance and Financial Management Portfolio and Security Analysis Charoenwong, C. DING, David K. Thong, Tiong Yang Decimalization, IPO Aftermath and Liquidity |
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This paper investigates the effect of decimalization on the aftermarket trading of NYSE-listed IPOs. We find that after decimalization, the relation between spreads and underpricing becomes negative, which suggests that the benefits from the increased price competition accrue more to hot IPOs. The depths are generally smaller post-decimalization because of the higher probability of front-running that aggravates the costs of adverse selection and limit order submission. In addition, we show that underwriters still provide price support but are only willing to cover the initial short position if it is still profitable post-decimalization. We also find that decimal pricing does not change the flipping strategy of institutions for cold IPOs as flipping is likely bounded by underwriter price support and shares allocation. Institutions, however, tend to flip more hot IPOs in the post- rather than pre-decimalization period, suggesting that the cost of flipping is much lower for those share prices with a substantial run-up during aftermarket trading. |
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Charoenwong, C. DING, David K. Thong, Tiong Yang |
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Charoenwong, C. DING, David K. Thong, Tiong Yang |
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Charoenwong, C. |
title |
Decimalization, IPO Aftermath and Liquidity |
title_short |
Decimalization, IPO Aftermath and Liquidity |
title_full |
Decimalization, IPO Aftermath and Liquidity |
title_fullStr |
Decimalization, IPO Aftermath and Liquidity |
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Decimalization, IPO Aftermath and Liquidity |
title_sort |
decimalization, ipo aftermath and liquidity |
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Institutional Knowledge at Singapore Management University |
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2005 |
url |
https://ink.library.smu.edu.sg/lkcsb_research/726 |
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