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The Development of Secondary Market Liquidity for NYSE-Listed IPOs





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    • Shane A. Corwin is from Mendoza College of Business, University of Notre Dame; Jeffrey H. Harris is from Lerner College of Business and Economics, University of Delaware; and Marc L. Lipson is from Terry College of Business, University of Georgia. The authors thank Rick Green and an anonymous referee for valuable suggestions. We also thank Reena Aggarwal, Kirsten Anderson, Robert Battalio, Carol Marie Boyer, Long Chen, Michael Goldstein, Paul Irvine, Robert Jennings, Naveen Khanna, Laurie Krigman, Alexander Ljungqvist, Tim Loughran, Paul Schultz, Bill Wilhelm, participants at the 2002 Yale-Nasdaq-JFM Market Microstructure Conference, and seminar participants at Nasdaq, the Securities and Exchange Commission, the University of Alberta, Michigan State University, the University of Notre Dame, Texas Christian University, and the University of Delaware for helpful comments. A portion of this work was completed while Marc Lipson was a Visiting Economist at the New York Stock Exchange. The comments and opinions expressed in this paper are the authors' and do not necessarily reflect those of the directors, members, or officers of the New York Stock Exchange, Inc. We are grateful to the New York Stock Exchange for providing data.


For NYSE-listed IPOs, limit order submissions and depth relative to volume are unusually low on the first trading day. Initial buy-side liquidity is higher for IPOs with high-quality underwriters, large syndicates, low insider sales, and high premarket demand, while sell-side liquidity is higher for IPOs that represent a large fraction of outstanding shares and have low premarket demand. Our results suggest that uncertainty and offer design affect initial liquidity, though order flow stabilizes quickly. We also find that submission strategies are influenced by expected underwriter stabilization and preopening order flow contains information about both initial prices and subsequent returns.