Chowdhry, Bhagwan; Nanda, Vikram - In: Journal of Financial and Quantitative Analysis 31 (1996) 01, pp. 25-42
We argue that in the after-market trading of an IPO, the underwriting syndicate, by standing ready to buy back shares at the offer price (“price stabilization”), compensates uninformed investors ex post for the adverse selection cost they face in bidding for IPOs. This dominates ex ante...