EVIDENCE ON PRICE STABILIZATION AND UNDERPRICING IN EARLY IPO RETURNS

Using data on 560 firm-commitment initial public offerings of common s tock for the 1982-1983 period, we find that the cross-sectional distri bution of one-day returns is modeled better as a mixture of two distri butions, with the parameter estimates of one distribution being consis tent with underpricing and the other with price stabilization. Further , the evidence that early IPO returns are drawn from a mixture distrib ution persists for at least four weeks. The implications of these resu lts for the analysis of IPO returns are illustrated by examining the i nfluence of a measure of ex ante price uncertainty on IPO pricing.