29 Pages Posted: 8 Aug 2001
Date Written: June 2003
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: 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