ABSTRACT
The phenomenon of offering prices being below the immediate aftermarket prices, popularly referred to as “underpricing”, has been confirmed by a number of empirical studies of common stock initial public offerings. The existence of underpricing is firmly established by all these studies even though the extent varies for the different studies. The studies have differed both in terms of their data sets and in terms of methodology. They vary in terms of the number of initial public offerings (IPOs) in the sample, the period over which the IPOs have been issued, the aftermarket period used in the calculations of the extent of underpricing. There is evidence that the risk associated with secondary trading on the NASDAQ (OTC) is different from that of secondary trading on the New York Stock Exchange (NYSE). For example, it has been observed that there are significant differences in the short-run and long-run price changes between the OTC stocks and the NYSE stocks.
