Underwriter Short Covering in the IPO Aftermarket: A Clinical Study

29 Pages Posted: 8 Aug 2001  

Raymond P.H. Fishe

University of Richmond - E. Claiborne Robins School of Business

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 2003

Abstract

In this paper, we present a case study of underwriter trading in the aftermarket of a recent initial public offering (IPO). The lead underwriter for this issue actively repurchased approximately 15 percent of the issue size to cover its initial short position. Detailed audit-trail and short-covering data identify the timing, volume, and counterparties for the Lead's trades. We find that price-support objectives are important on the first two short-covering days. Subsequently, repurchases appear to be governed primarily by their profitability and market liquidity. The Lead incurs lower transaction costs than other large traders, but provides substantial liquidity to the market.

Keywords: Initial public offering, price stabilization, short covering, aftermarket liquidity

JEL Classification: G24, G12, G32

Suggested Citation

Fishe, Raymond P.H. and Boehmer, Ekkehart, Underwriter Short Covering in the IPO Aftermarket: A Clinical Study (June 2003). Available at SSRN: https://ssrn.com/abstract=278945 or http://dx.doi.org/10.2139/ssrn.278945

Raymond P.H. Fishe

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Road
Richmond, VA 23173
United States
804-289-8549 (Phone)

Ekkehart Boehmer (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Paper statistics

Downloads
559
Rank
38,404
Abstract Views
3,662