Purpose – To test the effects of underpricing and share retention (i.e. the proportion of shares retained by the pre-initial-public-offering (IPO) owners) on IPO aftermarket liquidity. Design/methodology/approach – Uses both percentage spread and turnover ratio to measure liquidity. The...

Booth and Chua (1996) hypothesize that IPOs are underpriced to promote ownership dispersion, which in turn increases aftermarket liquidity of IPO stocks. We examine a sample of 1,179 Nasdaq IPOs and find that underpricing is positively correlated with the number of non-block institutional...

Booth and Chua [Booth J., Chua L. Ownership dispersion, costly information, and IPO underpricing. Journal of Financial Economics 1996; 41; 291-310] hypothesize that IPOs are underpriced to promote ownership dispersion, which in turn increases aftermarket liquidity of IPO stocks. We examine a sample of...

In this study we analyze the effect of order imbalance on the quotation behavior of Nasdaq market makers. We find that Nasdaq market makers use both price and quantity quotes when dealing with order imbalances. However, order imbalance affects only price movement, not spreads. We also find that...

Many studies find that tick size reduction results in smaller spreads and lower market making profits. However, how decimalization affects adverse selection cost and information efficiency and how the effects differ across exchanges and across stocks have not been fully investigated. This study...

Using the inventory components of spreads as a measure of inventory holding-risk, we test the hypothesis of Hanley, Kumar, and Seguin (1993) that price supports reduce market makers' inventory holding-risk in the aftermarket of initial public offerings (IPO). We find that both spreads and their...

In this study we show that both the price impact of trades and serial correlation in trade direction are positively and significantly related to the probability of information-based trading (PIN). The positive relation remains significant even after controlling for the effects of stock...

We investigate the effects of analysts' affiliation and reputation on dealers' market making activities. We find that, for a given stock, dealers who have affiliated analysts covering the stock quote and trade more aggressively than those who do not have any affiliated analysts. More...

We revisit and extend the topic of secondary share sales and revisions in IPOs. First we test to determine if secondary share sales constitute a negative signal that is captured in aftermarket performance. We find secondary share sales in general are not correlated with poorer initial or...

This paper proposes that in an initial public offering (IPO), pre-IPO owners make decisions regarding share retention, share lockup, and underpricing to improve liquidity, which in turn increases the value of shares they retain. We suggest that underpricing will increase the number of investors...