Strategic Order Submission and Cancellation in Pre-Opening Periods: The Case of IPO Firms

52 Pages Posted: 22 Mar 2009 Last revised: 22 May 2016

See all articles by Joseph Kuk

Joseph Kuk

Colonial First State Global Asset Management

Wai-Man Liu

Australian National University

Peter K. Pham

Australian School of Business - University of New South Wales; Financial Research Network (FIRN)

Date Written: September 1, 2015

Abstract

In order-driven markets, orders can be strategically submitted at aggressive prices during the pre-opening phase and withdrawn just before trading commences. Based on a Kyle (1989) setting, we develop several predictions regarding how such "strategic" orders can temporarily distort price discovery despite their non-binding nature. Evidence from IPO firms, where market prices are determined for the first time, supports our predictions. Strategic orders are concentrated among firms with substantial valuation uncertainty and small investor presence. Their submission leads to significant changes in the indicative opening price that are not subsequently reversed by their withdrawal, but only in post-opening trading activity.

Keywords: Pre-opening periods, initial public offerings, price discovery, market manipulation

JEL Classification: G24, G32

Suggested Citation

Kuk, Joseph and Liu, Wai-Man and Pham, Peter Kien, Strategic Order Submission and Cancellation in Pre-Opening Periods: The Case of IPO Firms (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=1362484 or http://dx.doi.org/10.2139/ssrn.1362484

Joseph Kuk

Colonial First State Global Asset Management ( email )

Level 30, 52 Martin Place
Sydney, NSW 2000
Australia

Wai-Man Liu (Contact Author)

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://www.cbe.anu.edu.au/about/staff-directory/?profile=Wai-Man%20(Raymond)-Liu

Peter Kien Pham

Australian School of Business - University of New South Wales ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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