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Price clustering and underpricing in the IPO aftermarket

ap Gwilym, Owain and Verousis, Thanos (2010) 'Price clustering and underpricing in the IPO aftermarket.' International Review of Financial Analysis, 19 (2). 89 - 97. ISSN 1057-5219

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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.

Item Type: Article
Uncontrolled Keywords: Price clustering, Microstructure, Initial public offerings, London Stock Exchange, High-frequency data
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 14 Mar 2019 19:35
Last Modified: 14 Mar 2019 20:15
URI: http://repository.essex.ac.uk/id/eprint/24189

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