We thank Mike Adams, Carol Carroll, Tom Downs, Brian Gray, and an anonymous referee for comments on prior drafts. We also thank Jay Ritter and the University of Florida for making some of the data publicly available through the university's website. Remaining errors are our own.
THE EFFECT OF THE TRADING SYSTEM ON IPO UNDERPRICING: EVIDENCE FROM THE 1997 ORDER-HANDLING RULES
Version of Record online: 18 MAR 2011
© 2011 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 34, Issue 1, pages 103–130, Spring 2011
How to Cite
Ligon, J. A. and Liu, H.-C. (2011), THE EFFECT OF THE TRADING SYSTEM ON IPO UNDERPRICING: EVIDENCE FROM THE 1997 ORDER-HANDLING RULES. Journal of Financial Research, 34: 103–130. doi: 10.1111/j.1475-6803.2010.01286.x
- Issue online: 18 MAR 2011
- Version of Record online: 18 MAR 2011
We use a natural experiment resulting from the 1997 Securities and Exchange Commission rule mandating a change in the order-handling rules (OHR) for all NASDAQ stocks to test whether secondary market structure affects initial public offering (IPO) underpricing. We find that the increase in liquidity that the OHR represent led to a decrease in underpricing for cold NASDAQ IPOs, suggesting that when liquidity is lowest, changes in market liquidity display a negative relation to initial returns.