Stabilization Activities by Underwriters after Initial Public Offerings

  • Author(s): Reena Aggarwal
  • Published: Dec 17, 2002
  • Pages: 1075-1103
  • DOI: 10.1111/0022-1082.00241

Prior research has assumed that underwriters post a stabilizing bid in the aftermarket. We find instead that aftermarket activities are less transparent and include stimulating demand through short covering and restricting supply by penalizing the flipping of shares. In more than half of IPOs, a short position of an average 10.75 percent of shares offered is covered in 22 transactions over 16.6 days in the aftermarket, resulting in a loss of 3.61 percent of underwriting fees. Underwriters manage price support activities by using a combination of aftermarket short covering, penalty bids, and the selective use of the overallotment option.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version