Asymmetric Information in the IPO Aftermarket


  • The authors thank Arnold R. Cowan and Cynthia J. Campbell (Editors), two anonymous referees, Richard Carter, Ann E. Sherman, Kee H. Chung, John G. Powell, Jing Shi, and the 2003 FMA International Conference participants for valuable comments and helpful discussions. The authors are solely responsible for the contents of the paper.

*Department of Economics and Finance, College of Business Administration, University of Louisiana, Monroe, LA 71209; Phone: 318-342-1169; Fax: 318-342-3096; E-mail:


Using the adverse selection component of the spread as a measure of asymmetric information, we investigate how asymmetric information evolves after firms go public. We find that the level of asymmetric information is lower immediately after the initial public offering (IPO) compared with its level after a period of seasoning. In addition, we test the hypothesis that the greater the underpricing of an IPO, the more information is produced in its aftermarket, and the lower the aggregate level of asymmetric information. Our results are consistent with the hypothesis and are robust after controlling for other factors.