Primary market characteristics and secondary market frictions of stocks
Boehme, Rodney Colak, Gonul
Boehme, Rodney
Colak, Gonul
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2012-05
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Article
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Keywords
Idiosyncratic risk,Information uncertainty,Initial public offerings,Liquidity,Market frictions,Short-sale constraints
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Citation
Boehme, R., and G. Colak. 2012. "Primary market characteristics and secondary market frictions of stocks".Journal of Financial Markets. 15 (2): 286-327.
Abstract
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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Publisher
Elsevier
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Journal of Financial Markets;2012:, v.15, no.2
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ISSN
1386-4181