Price clustering and underpricing in the IPO aftermarket
Ap Gwilym, Owain Verousis, Thanos
Ap Gwilym, Owain
Verousis, Thanos
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Publication Type
Journal article
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Supervisor
Publication Year
2010
Journal
International Review of Financial Analysis
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Publication Volume
19
Publication Issue
2
Publication Begin page
89
Publication End page
97
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Abstract
This is the first paper to systematically investigate price clustering in new equity assets using a high frequency transactions dataset. We test the hypotheses that past price information and market maker activities are related to price clustering. We report that price clustering in IPOs is substantially greater than the clustering observed for non-IPO assets, which supports the hypothesis that the decision of going public is followed by haziness about the true price. Underpricing is a significant determinant of price clustering for order-book trades, which supports the notion that underpriced IPOs partially reflect price uncertainties. Tick size specifications can be restrictive for individual investors, while giving execution priority to market makers. The characteristics of price clustering for off-book trades differ substantially to price clustering in the order-book.
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Keywords
Price Clustering, Microstructure, Initial Public Offerings, London Stock Exchange, High-Frequency Data