Who trades IPOs? A close look at the first days of trading

I examine the enormous trading volume in the first two days of trading following an initial public offering (IPO) with a sample of Nasdaq IPOs. The composition of trading varies widely with the initial return and not all trading is investor-related. Cold IPOs have a high proportion of interdealer sell trades, whereas hot IPOs have balanced investor buying and selling. Market makers hold zero inventory throughout trading, offsetting any investor inventory imbalance with a trade with the lead underwriter. The paper also helps resolve the disconnect reported in the literature between high initial trading volume and low "flipping" activity. (c) 2005 Elsevier B.V. All rights reserved.