We study the aftermarket for 72 initial public offerings (IPOs) using
comprehensive trade and quote-change data from every market maker for
the first three days of trading. Underwriters quote higher bid prices
than other market makers for issues that commence trading at or below
the offer price. Underwriters repurchase large quantities of stock in
the aftermarket without risk by overselling the issue by the amount of
the overallotment option. If the IPO is hot, the overallotment option
is exercised. If not, the short position is covered with aftermarket
selling. We discuss several reasons for underwriter support.