IPO Trading Without Market Makers or Underwriter Price Support

25 Pages Posted: 11 Jul 2011

See all articles by Daniel Bradley

Daniel Bradley

University of South Florida

Mingsheng Li

Bowling Green State University - College of Business Administration

Jing Shi

Macquarie University

Date Written: August 2011

Abstract

We investigate the trading behavior and liquidity supply of Chinese initial public offerings (IPOs) that trade in an order‐driven market system with pure limit order books where no market makers or price support is allowed. We find large trades and quoted depths dominate the first day of trading, but this pattern quickly reverses as small trades and quoted depths are more prevalent on subsequent trading days. Quoted depths are positively related to the number of shares offered in the IPO and trade size, but are negatively related to underpricing. Trade size and transaction immediacy are positively related, and large and positive (negative) order imbalance is associated with more aggressive buys (sells). Finally, long‐run performance is not related to initial order imbalance. Overall, our results suggest that despite underwriters not participating in the IPO aftermarket, liquidity provision evolves very quickly and price discovery is immediately reflected in prices.

Keywords: initial public offerings, order‐driven market, order imbalance, liquidity supply

JEL Classification: G14

Suggested Citation

Bradley, Daniel and Li, Mingsheng and Shi, Jing, IPO Trading Without Market Makers or Underwriter Price Support (August 2011). Financial Review, Vol. 46, Issue 3, pp. 459-483, 2011. Available at SSRN: https://ssrn.com/abstract=1882149 or http://dx.doi.org/10.1111/j.1540-6288.2011.00308.x

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Mingsheng Li

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

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