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Evolution of integer price clustering of IPOs in the aftermarket

Evolution of integer price clustering of IPOs in the aftermarket Purpose– The purpose of this paper is to, using a large sample of NASDAQ initial public offerings (IPOs), examine the evolution of integer price clustering of IPOs in the aftermarket trading. Design/methodology/approach– Consistent with Harris’s (1991) costly negotiation hypothesis, clustering on integer prices is a positive function of price level and various stock valuation uncertainty proxies, and it is a negative function of trading activities for IPOs and seasoned stocks. Findings– It was found that, after controlling for price level, daily return volatility, number of trades, trading volume, number of market makers and the effect of price support, the integer price frequency of IPOs converge to that of seasoned stocks immediately, and whether IPOs have integer offer prices does not affect their integer price clustering in the aftermarket trading after the effect of price support is controlled for. Originality/value– These results suggest that the IPO pricing process significantly reduce the differences between integer priced IPOs and non-integer priced IPOs in pre-offering valuation uncertainty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Nankai Business Review International Emerald Publishing

Evolution of integer price clustering of IPOs in the aftermarket

Nankai Business Review International , Volume 5 (4): 17 – Oct 28, 2014

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2040-8749
DOI
10.1108/NBRI-01-2014-0008
Publisher site
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Abstract

Purpose– The purpose of this paper is to, using a large sample of NASDAQ initial public offerings (IPOs), examine the evolution of integer price clustering of IPOs in the aftermarket trading. Design/methodology/approach– Consistent with Harris’s (1991) costly negotiation hypothesis, clustering on integer prices is a positive function of price level and various stock valuation uncertainty proxies, and it is a negative function of trading activities for IPOs and seasoned stocks. Findings– It was found that, after controlling for price level, daily return volatility, number of trades, trading volume, number of market makers and the effect of price support, the integer price frequency of IPOs converge to that of seasoned stocks immediately, and whether IPOs have integer offer prices does not affect their integer price clustering in the aftermarket trading after the effect of price support is controlled for. Originality/value– These results suggest that the IPO pricing process significantly reduce the differences between integer priced IPOs and non-integer priced IPOs in pre-offering valuation uncertainty.

Journal

Nankai Business Review InternationalEmerald Publishing

Published: Oct 28, 2014

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