Returns and liquidity in the aftermarket

Date of Award




Degree Name

Doctor of Philosophy (Ph.D.)



First Committee Member

Michael B. Connolly, Committee Chair


The dissertation consists of four chapters exploring market efficiency and microstructure of stock returns in the post-IPO market. The first chapter provides the introduction. The second chapter provides background regarding the IPO process and the most well-known anomalies and microstructure issues surrounding the post-IPO market.The third chapter explores the efficiency of the post-IPO market through analysis of post-event abnormal returns. The unique setting of the immediate aftermarket allows for an assessment of market efficiency after the trading has just begun, when no pre-existing history of return behavior exists. Properties of stock returns immediately after the IPO are not known to market participants. This is in contrast to the returns of seasoned stocks, so the response to information events may be different during this period. To investigate, the analysis infers news events by identifying significant price changes. The dynamics of post-event abnormal returns are then analyzed as stocks season. The results show that during the first trading year, the absolute value of post-event abnormal returns is negatively related to the time elapsed since the IPO date for positive events. This implies that the speed of incorporation of new information signals into stock prices quickens as stocks season.The fourth chapter studies the effects of large price changes on liquidity measures such as spread and depth, as well as transaction prices immediately following the IPO. In the immediate aftermarket the underwriter is almost always the market maker for NASDAQ stocks and, from the perspectives of the underwriter and the market maker, there are different sets of incentives. Prior studies document that liquidity providers manage additional uncertainty by decreasing liquidity exposure; that is, by widening the spread and reducing the depth. This study documents, however, that in the immediate aftermarket the quoted spread is the only dimension along which liquidity providers manage any additional uncertainty. In addition, the analysis shows that the magnitude of the quoted spread increases as the time since the IPO increases. This finding is consistent with the hypothesis that the market makers have an incentive to offer additional liquidity to ensure the success of the offering. Surprisingly, the magnitude of the spread increases seems to have a negligible effect on post-event return predictability on a daily basis.


Economics, General; Economics, Finance

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