Strategic Order Submission and Cancellation in Pre-Opening Periods: The Case of IPO Firms
52 Pages Posted: 22 Mar 2009 Last revised: 22 May 2016
Date Written: September 1, 2015
Abstract
In order-driven markets, orders can be strategically submitted at aggressive prices during the pre-opening phase and withdrawn just before trading commences. Based on a Kyle (1989) setting, we develop several predictions regarding how such "strategic" orders can temporarily distort price discovery despite their non-binding nature. Evidence from IPO firms, where market prices are determined for the first time, supports our predictions. Strategic orders are concentrated among firms with substantial valuation uncertainty and small investor presence. Their submission leads to significant changes in the indicative opening price that are not subsequently reversed by their withdrawal, but only in post-opening trading activity.
Keywords: Pre-opening periods, initial public offerings, price discovery, market manipulation
JEL Classification: G24, G32
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Why Has IPO Underpricing Changed Over Time?
By Tim Loughran and Jay R. Ritter
-
Why Has IPO Underpricing Changed Over Time?
By Tim Loughran and Jay R. Ritter
-
A Review of IPO Activity, Pricing and Allocations
By Jay R. Ritter and Ivo Welch
-
A Review of IPO Activity, Pricing, and Allocations
By Ivo Welch and Jay R. Ritter
-
Why Don't Issuers Get Upset About Leaving Money on the Table in Ipos?
By Tim Loughran and Jay R. Ritter
-
Underpricing and Entrepreneurial Wealth Losses in Ipos: Theory and Evidence
-
Common Stock Offerings Across the Business Cycle: Theory and Evidence
By Hyuk Choe, Ronald W. Masulis, ...
-
IPO Market Cycles: Bubbles or Sequential Learning?
By Michelle Lowry and G. William Schwert
-
IPO Market Cycles: Bubbles or Sequential Learning?
By Michelle Lowry and G. William Schwert