Hostname: page-component-5db6c4db9b-s6gjx Total loading time: 0 Render date: 2023-03-26T04:25:34.867Z Has data issue: true Feature Flags: { "useRatesEcommerce": false } hasContentIssue true

Initial Public Offering Allocations, Price Support, and Secondary Investors

Published online by Cambridge University Press:  16 December 2016


Tying initial public offering (IPO) allocations to after-listing purchases of other IPO shares as a form of price support has generated much theoretical interest and media attention. Price support is price manipulation and can reduce secondary investor return. In the past, obtaining data to investigate price support has proven to be difficult. I document that price support is harming secondary investor return using new data from the Oslo Stock Exchange. I also show that investors who engage in price support are allocated more future oversubscribed allocations, whereas harmed secondary investors significantly reduce their future participation in the secondary market.

Research Article
Copyright © Michael G. Foster School of Business, University of Washington 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Abrahamson, M.; Jenkinson, T.; and Jones, H.. “Why Don’t U.S. Issuers Demand European Fees for IPOs?Journal of Finance, 66 (2011), 20552082.CrossRefGoogle Scholar
Aggarwal, R.Allocation of Initial Public Offerings and Flipping Activity.” Journal of Financial Economics, 68 (2003), 111135.CrossRefGoogle Scholar
Barber, B., and Lyon, J.. “Detecting Long-Run Abnormal Stock Returns.” Journal of Financial Economics, 43 (1997), 341372.CrossRefGoogle Scholar
Barber, B., and Odean, T.. “All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors.” Review of Financial Studies, 21 (2008), 785818.CrossRefGoogle Scholar
Boehmer, B.; Boehmer, E.; and Fishe, R. P. H.. “Do Institutions Receive Favorable Allocations in IPOs with Better Long-Run Returns?Journal of Financial and Quantitative Analysis, 41 (2006), 809828.CrossRefGoogle Scholar
Chen, Z., and Wilhelm, W.. “A Theory of the Transition to Secondary Market Trading of IPOs.” Journal of Financial Economics, 90 (2008), 219236.CrossRefGoogle Scholar
Chiang, Y.; Lowry, M.; and Qian, Y.. “The Information Advantage of Underwriters in IPOs.” SSRN Working Paper, Drexel University (2014).Google Scholar
Ellis, K.Who Trades IPOs? A Close Look at the First Days of Trading.” Journal of Financial Economics, 79 (2006), 339363.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.CrossRefGoogle Scholar
Fulghieri, P., and Spiegel, M.. “A Theory of the Distribution of Underpriced Initial Public Offers by Investment Banks.” Journal of Economics and Management Strategy, 42 (1993), 509530.CrossRefGoogle Scholar
Griffin, J.; Harris, J.; and Topaloglu, S.. “Why Are IPO Investors Net Buyers through Lead Underwriters?Journal of Financial Economics, 85 (2007), 518551.CrossRefGoogle Scholar
Hao, Q.Laddering in Initial Public Offerings.” Journal of Financial Economics, 85 (2007), 102122.CrossRefGoogle Scholar
Hilbe, J. M. Negative Binomial Regression, 2nd ed. Cambridge, UK: Cambridge University Press (2007).CrossRefGoogle Scholar
Kothari, S. P., and Warner, J. B.. “Measuring Long-Horizon Security Price Performance.” Journal of Financial Economics, 43 (1997), 301339.CrossRefGoogle Scholar
Kumar, A., and Lee, C. M. C.. “Retail Investor Sentiment and Return Comovements.” Journal of Finance, 61 (2006), 24512486.CrossRefGoogle Scholar
Liu, X., and Ritter, J.. “Local Underwriter Oligopolies and IPO Underpricing.” Journal of Financial Economics, 102 (2011), 579601.CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “Why Don’t Issuers Get Upset about Leaving Money on the Table in IPOs?Review of Financial Studies, 15 (2002), 413443.CrossRefGoogle Scholar
Megginson, W., and Weiss, K.. “Venture Capitalist Certification in Initial Public Offerings.” Journal of Finance, 46 (1991), 879903.CrossRefGoogle Scholar
Odean, T.Are Investors Reluctant to Realize Their Losses?Journal of Finance, 53 (1998), 17751798.CrossRefGoogle Scholar
Ritter, J.Differences between European and American IPO Markets.” European Financial Management, 9 (2003), 421434.CrossRefGoogle Scholar
Wilhelm, W.Secondary Market Stabilization of IPOs.” Journal of Applied Corporate Finance, 12 (1999), 7885.CrossRefGoogle Scholar
Zhang, D.Why Do IPO Underwriters Allocate Extra Shares When They Expect to Buy Them Back?Journal of Financial and Quantitative Analysis, 39 (2004), 571594.CrossRefGoogle Scholar