The link between IPO underpricing and trading volume: evidence from the Istanbul stock exchange

Date

2006

Authors

Yüksel, Aydin
Yüksel, Asli

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Abstract

Recent evidence from U.S. markets shows that IPO underpricing is associated with high liquidity for issuing firms. One explanation given for this link is that IPO firms simultaneously decide on share retention and underpricing to maximize aftermarket liquidity. We use data from the Istanbul Stock Exchange (ISE) to provide international evidence. Our results do not support the argument that IPO firms use underpricing as a tool to make up the reduction in liquidity caused by higher share retention. We report that there is an asymmetric relationship between underpricing and trading volume in the short run. However, the positive link between short term volume and long term volume, which is shown to exist in U.S. markets, is missing in the ISE. Based on the explanations in prior research, we argue that the lack of persistency in initial broad ownership and/or investor interest may be the reason for the missing link.

Source Title

The Journal of Entrepreneurial Finance

Publisher

Pepperdine University * Graziadio School of Business and Management

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Citation

Published Version (Please cite this version)

Language

English