Evolution of integer price clustering of IPOs in the aftermarket

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.

Citation

Wang, Q. (2014), "Evolution of integer price clustering of IPOs in the aftermarket", Nankai Business Review International, Vol. 5 No. 4, pp. 365-381. https://doi.org/10.1108/NBRI-01-2014-0008