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Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket?

Author

Listed:
  • Tamara Nefedova

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Giuseppe Pratobevera

    (University of Lugano and Swiss Finance Institute - University of Lugano and Swiss Finance Institute)

Abstract
We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutional investors are less likely to sell than buy through the lead underwriters. Consistent with investors hiding their sell trades, the asymmetry is the strongest in cold IPOs and it is limited exclusively to the first month after the issue. Contrary to the conventional view, the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters; institutions that sell shares through non-lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket, consistent with institutions breaking their laddering agreements. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Suggested Citation

  • Tamara Nefedova & Giuseppe Pratobevera, 2018. "Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket?," Post-Print hal-02108887, HAL.
    • Handle: RePEc:hal:journl:hal-02108887
    DOI: 10.2139/ssrn.3189086
    Note: View the original document on HAL open archive server: https://hal.science/hal-02108887
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    References listed on IDEAS

    as
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    Cited by:

    1. Pratobevera, Giuseppe, 2024. "Bank-affiliated institutional investors and IPO syndicates formation," Journal of Corporate Finance, Elsevier, vol. 86(C).
    2. Chemmanur, Thomas J. & Hu, Gang & Wei, K.C. John, 2021. "The role of institutional investors in corporate and entrepreneurial finance," Journal of Corporate Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    IPO allocations; IPO aftermarket trading; laddering; flipping; institutional investors;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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