Price Stabilization in the Market for New Issues

Posted: 12 Feb 2008

See all articles by Kathleen Weiss Hanley

Kathleen Weiss Hanley

Lehigh University - College of Business

Paul J. Sequin

affiliation not provided to SSRN

Abstract

This study examines price stabilization in new equity issues. Stabilizationtruncates the distribution of post-issue prices at a floor price, lowering the risk of adverse price moves and hence, in a competitive dealer market, reducing the bid-ask spread. Using 1,523 NASDAO-traded firm-commitment initial public offerings issued between 1982 and 1987, we find that spreads narrow when the market price is close to the offer price and stabilization is most likely. Moreover, significant negative returns are documented after the hypothesized termination of stabilizing activities, suggesting that stabilization, and its cessation, affect market prices.

Suggested Citation

Hanley, Kathleen Weiss and Sequin, Paul J., Price Stabilization in the Market for New Issues. Journal of Financial Economics (JFE), Vol. 34, No. 2, 1993, Available at SSRN: https://ssrn.com/abstract=1092181

Kathleen Weiss Hanley

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Paul J. Sequin (Contact Author)

affiliation not provided to SSRN

No Address Available

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