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Journal of Financial Economics Vol. 98 No. 1 2010

Short selling in initial public offerings☆

Amy K. Edwards1; Kathleen Hanley2,3

1 United States Securities and Exchange Commission · 2 Federal Reserve Board of Governors · 3 Lehigh University

open access

Abstract

Short sale constraints in the aftermarket of initial public offerings (IPOs) are often used to explain short-term underpricing that is subsequently reversed. This paper shows that short selling is integral to aftermarket trading and is higher in IPOs with greater underpricing. Perceived restrictions on borrowing shares are not systematically circumvented by “naked” short selling. Short sellers, on average, do not appear to earn abnormal profits in the near term and our findings are not driven by market makers. Short selling in IPOs is not as constrained as suggested by the literature, implying that other factors may be responsible for underpricing.

DOI
10.1016/j.jfineco.2010.03.010
Volume
98
Issue
1
Pages
21-39
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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