When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket
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- 1 June 2000
- journal article
- Published by Wiley in The Journal of Finance
- Vol. 55 (3) , 1039-1074
- https://doi.org/10.1111/0022-1082.00240
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.This publication has 22 references indexed in Scilit:
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