Primary market characteristics and secondary market frictions of stocks
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.
Description
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