The Behavior of Prices, Trades and Spreads for Canadian IPO’s€¦ · positive number of traded shares and have trade-by-trade returns less TABLE 1. IPO’s By Year Year IPO’s
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*Financial support from the Concordia FRDP (Faculty Research and Development Program), Ned Goodman Chair in Investment Finance, SSQRC_CIRPÉE, SSQRC, IFM2 and SSHRC (Social Sciences and Humanities Research Council of Canada) are gratefully acknowledged. We appreciate comments and suggestions from participants at presentations at the Multinational Finance Conference (Paphos 2002), Northern Finance Association Conference (Calgary 1999) and Financial Management Association Conference (Orlando 1999), and the research assistance provided by Gang Li.
The Behavior of Prices, Trades andSpreads for Canadian IPO’s
Lawrence KryzanowskiConcordia University, Canada
Skander Lazrak Brock University, Canada
Ian RakitaConcordia University, Canada
Microstructure effects for 359 TSX listed IPO’s in the period 1984–2002are examined. Based on first day returns, earning positive mean returns is verydifficult even when most IPO’s are purchased at the offer price. Mean dailytrade volume for the first five days of IPO trading is large relative to the meansfor the first thirty days and for longer periods. The dollar volume of sells isalways significantly larger than that of buys suggesting that institutionalinvestors are active on the sell side in the aftermarket. Liquidity as measured byquoted depth is initially large and decays rapidly over time. Gross returns areoften low or negative, and average round-trip trade costs increase from 1.5% to2.9% and 1.8% to 3.7% for more and less patient traders, respectively, over thefirst nine months of trading for an average IPO. Early amortized spreads arerelatively large due to large initial share turnover (JEL: G10, G15).
Keywords: initial public offerings; microstructure; spreads; decimalization.
I. Introduction
The importance of frictions in capital markets has been acknowledgedat least as far back as 1968 when Demsetz published his seminal article
Multinational Finance Journal216
1. See, for example, Choi, Salandro and Shastri (1988), Glosten and Harris (1988),George, Kaul and Nimalendran (1991), Stoll (1989), and Huang and Stoll (1997).
2. Beaulieu, Ebrahim and Morgan (2003) examine the 1991 move to decimalization forToronto Stock Exchange 35 Index Participation Units, and find that price discovery isinfluenced by tick size.
3. Some notable exceptions include Hegde and Miller (1989) who find that bid-askspreads for IPO’s are on average about 25 percent less than those for seasoned stocks and thatthis difference persists for eight weeks post IPO; Glascock, Hughes and Varshney (1998) whoconclude that bid-ask spreads for REIT IPO’s are significantly larger than for common stocksand funds; Ellis, Michaely and O’Hara (2000) who establish the fact that lead underwritersare the dominant IPO market-makers and that they act to stabilize prices for poorlyperforming new issues; Aggarwal and Conroy (2000) who determine that the price discoveryprocess is influenced by the time of day when IPO trading begins; and Nandha and Sawyer(2002) who find that in the Indian IPO market the relationship between ex-ante uncertaintyand information asymmetry proxies and the level of underpricing varies between par (a fixedprice of 10 rupees) and premium (priced above par) new issues.
that included a model of market maker activity wherein he demonstratedthat the bid-ask spread could be interpreted as a cost of immediacy.Thereafter, the literature in this area has grown dramatically. WhileDemsetz (1968) concentrated on order processing costs, other papersexamined components of the bid-ask spread that also includedasymmetric information and inventory holding costs.1
Market microstructure research has also been strongly driven byorder flow characteristics and related security market rules andregulations. The determination of equilibrium prices and how they varyover time are critically affected by rules regarding minimum tick sizesas well as by other trade features such as share volume and tradefrequency. Therefore, the move to decimalization has been an importantdeterminant of liquidity and trade cost and has received significantattention by researchers. For the 1996 move to decimalization on theToronto Stock Exchange (TSX), Chung et al. (1996), Ahn et al. (1996,1998), Bacidore (1997), Porter and Weaver (1997), and others, findsignificant reductions in quoted and effective spreads for TSX-listedstocks post-decimalization.2 Bessembinder (2003) analyzes the 2001move to decimalization on the NYSE and Nasdaq and notes that quotedspreads decline significantly on each market and that liquidity supply isnot adversely affected.
The literature on initial public offerings (IPO’s) is extensive andconcentrates to a large degree on underpricing and its associateddeterminants. In contrast, substantially less published work exists on themarket microstructure of new equity offerings.3 Given this deficiency
217Canadian IPO’s Stock Behavior
in the literature, the primary objective of this paper is to examinespecific microstructure characteristics of a sample of Canadian commonstock IPO’s over a relatively long period of time (1984–2002). To thisend, we examine trade and quote behavior and returns over variousinitial time intervals stretching out to 180 trading days post IPO.Additionally, we examine the impact that the 1996 move todecimalization on the Toronto Stock Exchange (TSX) had on tradecosts, depth, number of trades, volume and returns.
This research is of particular interest to both private and institutionalinvestors who need to better understand the costs and risks that they arelikely to bear as participants in the IPO aftermarket. It also is ofimportance to underwriters who typically act as market makers for newissues and to market regulators who are charged with the responsibilityof ensuring that the new issue process and trading in the aftermarket isfair to all participants.
The remainder of this paper is organized as follows. In the nextsection the sample and data set are described. In section three, returnsare briefly considered. We report on the results of our investigation intoshort run trade activity, as measured primarily by share volume insection four. In section five, we examine two dimensions of tradeliquidity, as measured by quoted depth and spreads, where variousrelative and absolute measures are used to capture the latter. In sectionsix, amortized spreads are examined. Concluding remarks are offered insection seven.
II. Sample and Description of the Data
For the period 1984–92, Canadian IPO’s are identified using the TSXAnnual New Listings Report and cross matching each new listing (sinceit need not be an IPO) with a prospectus that identifies the issue as beingan IPO. For the period 1993–2002, the Record of New Issues publishedby the Financial Post is employed. This database lists new Canadianissues of all types (classes of debt, equity and preferred shares). Debt,unit offerings and preferred shares are filtered out as are issues withoffer prices below $2.
Next, trade-by-trade data are extracted from the Equity Historydatabase compiled by the TSX. This database contains the time stamp,bid, ask, transaction price, depth, and volume for all TSX trades andquotes. In the next sections of this paper, we specifically examine the
Multinational Finance Journal218
4. The final sample consists of 370 IPO’s. Since we have access to the Equity Historydatabase from the middle of 1984, four IPO’s were dropped from the sample since they wereissued in the first few months of 1984. Seven other IPO’s were sold on a “when issued” basis.These IPO’s have different risk characteristics and trade several days prior to the start ofregular share trading on the TSX. According to a document issued by Market RegulationServices Incorporated - Canada’s independent securities trading regulator, trades on a whenissued basis will be cancelled if the Exchange determines that the security underlying thetrade will not be issued. To maintain sample homogeneity, these issues were also droppedalthough we conducted our analysis both with and without these issues and they had nodiscernible influence on the final results.
trade and quote data for periods up to (trading) days 5, 30, 90 and 180post IPO. Thus, this study examines microstructure effects that extendapproximately 9 calendar months after the start of secondary markettrading.
The final sample contains 359 new issues.4 Table 1 gives ayear-by-year account of the number of IPO’s included in the sample. Itis interesting to note the relatively large number of issues in 1986 andin 1987 (i.e., up to the world-wide market crash) and the limited numberof issues for the five subsequent years. The years 2001 and 2002 showrestricted activity following the bursting of the telecom and techbubbles.
Concerning quotes, we only include those that fall between 9:30 amand 4:00 pm and for which the bid is less than ask, are both positive,and for which the spread is less than 30 percent of the mid-spread.Pre-open and halt quotes are ignored. To be included, trades must occurbetween 9:30 am and 4:00 pm, have positive transaction prices for apositive number of traded shares and have trade-by-trade returns less
5. The raw sample consists of 2,947,583 quote lines and 2,285,698 trade lines. Thefilters eliminate 1.16% and 0.90% respectively of the quotes and trade lines.
6. See Jay Ritter’s website link at http://bear.cba.ufl.edu/ritter/Int.pdf.
FIGURE 1.—Mean Daily Returns Over 180 Days Post IPO for 359New TSX Issues in the Period 1984–2002.
than or equal to 50 percent. Trades also are excluded if they havespecial conditions attached related to settlement, delayed delivery orcancellation.5 We assume that the associated quote is posted at least 5seconds before a trade. Finally, the Lee and Ready (1991) algorithm isused to sign each trade.
III. Returns
Although an analysis of returns is not the primary focus of this study, afew comments are worth mentioning since they add to the growingworld wide evidence aimed at highlighting the underpricing of IPO’s.Of the 359 new issues in the sample, 50.1 percent (180 of 359 issues)are underpriced. This is consistent with the percentage of underpricedIPO’s (49.1%) reported in an earlier study by Chung, Kryzanowski andRakita (2000).
The fact that IPO returns are significantly positive at the start ofsecondary market trading has been well documented in numerousinternational studies.6 For the present sample, day-one mean (median)returns are 6.65 (0.2) percent. Since initial median returns areindistinguishable from zero the typical investor will probably not earn
I P O M e a n D a ily R e tu rn s
-1 . 0 %
-0 . 5 %
0 . 0 %
0 . 5 %
1 . 0 %
1 . 5 %
2 . 0 %
2 . 5 %
3 . 0 %
3 . 5 %
4 . 0 %
4 . 5 %
5 . 0 %
5 . 5 %
6 . 0 %
6 . 5 %
7 . 0 %
0 2 0 4 0 6 0 8 0 1 0 0 1 2 0 1 4 0 1 6 0 1 8 0
D a y s f r o m s ta r t o f tra d in g
Mea
n re
turn
s
Multinational Finance Journal220
7. Only two of 38 countries listed on Jay Ritter’s website have similar low initial meanreturns. The country with the lowest recorded initial mean return is Denmark at 5.4% for 117new issues in the period 1984–1998. Austria had the same first day mean return of 6.3% forthe period 1984–2002 (83 IPO’s) as did the aggregate group of three Canadian studies (500IPO’s) listed.
a short term profit. The initial mean return found here is among thesmallest of any country where a formal study has been conducted.7
Figure 1 shows the daily evolution of mean returns. After relativelylarge first day positive returns, daily unadjusted mean returns appear tobounce around randomly within a narrow band (–0.5% to %0.5%)through to the end of the sample period.
Table 2 gives a more detailed breakdown of the distribution of firstday mean returns for the IPO sample and serves to highlight howdifficult it is to earn positive first day returns for Canadian IPO’s evenwhen purchases are made at the offer price. Consider an uninformedinvestor who naively adopts a policy of investing in every available IPOlisted on the TSX. Assume that the universe of possible IPO’s availablefor investment is the sample selected in this study. As is usually thecase, hot IPO’s will be oversubscribed and the investor will receive asmall allocation or more likely no allocation of shares for these IPO’s.According to table 2, if the investor misses out on investing in all issueswith first day returns above 100 percent (these are the IPO’s with thethree largest first day returns in the sample having a mean first dayreturn of 155.8%) but still invests in the remaining 99.16 percent of thesample, the first day return before trade costs would drop from 6.65percent to 5.40 percent. Missing out on IPO’s with first day returnsabove 20 percent (these are the top forty-five new issues in terms of first
TABLE 2. Distribution of First Day TSX IPO Returns
First Day Number of Sample Percentage of Sample First DayReturns IPO’s Represented IPO’s Represented Mean Return
day returns) but investing in the remaining 87.47 percent of the samplewould produce a first day mean return of only 1.06 percent. Finallymissing out on IPO’s with first day returns above 10 percent (the top 81issues) but investing in more than three-quarters of the remainingsample would actually produce a negative first day mean return of 0.64percent before trade costs. The inescapable conclusion is that being ableto buy the majority of TSX listed IPO’s at the offer price does notguarantee a positive first day mean return and may in fact result in anaverage loss.
Even the relatively low short term return encountered here isstrongly influenced by the price run up in the post-decimalizationperiod, which embodies the tech and telecom bubbles of the later 1990s.The pre-decimalization (prior to April 15, 1996) mean return for 234IPO’s (65.2 percent of the sample) was 4.1 percent whereas thepost-decimalization mean return for 125 IPO’s (34.8 percent of thesample) was 11.4 percent. The pre (post)-decimalization median initialreturn was 0 percent (1.7 percent).
IV. Dollar Volume
Transactions and volume are known to convey information to marketparticipants. The onset of secondary market trading in a new stockmarks the beginning of the price discovery process wherein opposingforces of supply and demand are influenced by a stream of informationultimately resulting in a price that is suppose to reflect the value of thestock. Conventional belief is that the start of trading for most IPO’s istypically marked by unusually high trading frequency and share volume.This exaggerated trading frequency and share volume decays steadilyover time and generally reaches a stable long-term level pending therelease of new and significant information that normally causes ashort-term jump in these two market activity measures.
Comments focusing on dollar volume and differences compared totrading frequency are reported when they exist. Specifically, the dollarvolume of trades for the sample of 359 IPO’s for periods of 5, 30, 90and 180 trading days post issue are examined. In calendar time, thiscorresponds to from one week up to about nine months after the start ofsecondary market trading. Dollar share volume for each IPO trade in thefirst 180 days of post-IPO trading is obtained by finding the product ofthe number of shares traded and its associated transaction price. The
Multinational Finance Journal222
TA
BL
E 3
.IP
O V
olum
e St
atis
tics
and
Sta
tist
ical
Tes
ts o
f D
olla
r V
olum
e fo
r IP
O B
uys
Ver
sus
Sells
Dol
lar
Vol
ume
Dol
lar
Vol
ume
of B
uys
Sta
tist
ic5
3090
180
530
9018
0
For
Ful
l Per
iod:
Mea
n2,
370,
474
979,
259
674,
964
670,
729
1,02
7,83
144
4,58
430
2,80
331
2,46
2M
edia
n41
8,06
320
7,04
715
0,60
612
6,02
316
1,26
081
,676
65,6
6257
,857
Std
. Dev
.7,
692,
286
3,04
0,84
12,
519,
753
3,00
0,71
63,
609,
911
1,43
7,63
21,
128,
564
1,42
5,11
7F
or P
re-d
ecim
aliz
atio
n P
erio
dM
ean
1,07
7,64
944
8,74
030
4,35
725
0,08
641
6,60
718
4,61
613
0,74
510
9,41
7M
edia
n26
3,84
715
0,75
611
7,97
610
4,84
095
,914
59,2
5152
,132
44,6
04S
td. D
ev.
3,15
5,05
61,
029,
389
679,
716
561,
379
1,20
8,93
443
9,98
830
7,87
325
9,25
0F
or P
ost-
deci
mal
izat
ion
Per
iod
Mea
n4,
790,
642
1,97
2,39
01,
368,
739
1,45
8,17
32,
172,
042
931,
243
624,
897
692,
562
Med
ian
989,
157
405,
747
249,
305
188,
768
433,
056
183,
388
110,
074
88,1
72S
td. D
ev.
11,9
61,1
884,
814,
528
4,08
8,77
74,
944,
201
5,73
1,67
12,
288,
442
1,82
7,18
82,
348,
158
(Con
tinu
ed)
223Canadian IPO’s Stock Behavior
TA
BL
E 3
.(C
onti
nued
)
Dol
lar
Vol
ume
of S
ells
Dol
lar
Vol
ume
Rat
ios
Sta
tist
ic5
3090
180
530
9018
0
For
Ful
l Per
iod
Mea
n1,
342,
643
534,
675
372,
160
358,
267
0.89
49b
0.85
58c
0.86
49c
0.86
10c
Med
ian
239,
253
111,
962
81,4
0472
,420
0.68
96c
0.75
71c
0.78
86c
0.81
04c
Std
. Dev
.4,
204,
450
1,64
0,76
71,
415,
674
1,58
6,74
10.
8298
0.56
060.
4748
0.44
95F
or P
re-d
ecim
aliz
atio
n P
erio
dM
ean
661,
042
264,
124
173,
613
140,
669
0.85
81c
0.80
43c
0.82
10c
0.80
39c
Med
ian
160,
723
89,9
6368
,387
60,2
850.
6626
c0.
7374
c0.
7739
c0.
7824
c
Std
. Dev
2,04
7,90
361
2,23
437
7,82
630
5,39
10.
8002
0.55
900.
4625
0.39
19F
or P
ost-
deci
mal
izat
ion
Per
iod
Mea
n2,
618,
600
1,04
1,14
774
3,84
176
5,61
10.
9636
0.94
790.
9426
0.96
22M
edia
n56
4,87
420
3,89
612
1,21
610
1,85
20.
7469
c0.
8086
b0.
8879
c0.
8851
b
Std
. Dev
.6,
374,
792
2,58
2,89
92,
303,
093
2,61
4,78
70.
8813
0.55
370.
4879
0.52
32
Not
e: a
, b a
nd c
indi
cate
sig
nifi
canc
e at
the
0.10
, 0.0
5 an
d 0.
01 le
vels
. Thi
s ta
ble
repo
rts
vari
ous
cros
s-se
ctio
nal s
tati
stic
s fo
r th
e av
erag
edo
llar
vol
ume
of tr
ades
und
iffe
rent
iate
d an
d di
ffer
enti
ated
as
buys
or
sell
s fo
r th
e sa
mpl
e of
359
IP
O’s
for
the
firs
t 5, 3
0, 9
0 an
d 18
0 da
ys o
ftr
adin
g po
st-I
PO
for
the
enti
re p
erio
d an
d fo
r th
e pe
riod
s be
fore
and
aft
er th
e in
trod
ucti
on o
f de
cim
aliz
atio
n by
the
Tor
onto
Sto
ck E
xcha
nge
(TS
X) o
n A
pril
15,
199
6. B
uys
and
sell
s ar
e in
ferr
ed u
sing
the
algo
rith
m o
f Lee
and
Rea
dy (1
991)
. The
dol
lar v
olum
e of
eac
h tr
ade
is o
btai
ned
by m
ulti
plyi
ng th
e nu
mbe
r of s
hare
s tr
aded
by
the
trad
e pr
ice.
Dol
lar
trad
e vo
lum
es a
re f
irst
agg
rega
ted
on a
dai
ly b
asis
for e
ach
IPO
, and
then
the
tim
e-se
ries
ave
rage
is c
alcu
late
d fo
r ea
ch I
PO
for
eac
h of
the
four
pos
t-IP
O p
erio
ds. T
he ta
ble
also
rep
orts
thre
e su
mm
ary
stat
isti
cs f
or th
ecr
oss-
sect
iona
l di
stri
buti
ons
of t
he t
ime-
seri
es a
vera
ges
for
the
rati
os o
f th
e do
llar
vol
ume
of b
uys
to t
he d
olla
r vo
lum
e of
sel
ls f
or t
he I
PO
sam
ple.
Fol
low
ing
the
clas
sifi
cati
on o
f ea
ch t
rade
as
a bu
y or
sel
l fo
r ea
ch I
PO
, th
e ra
tio
of t
he d
olla
r vo
lum
e of
buy
s an
d se
lls
are
then
aggr
egat
ed o
n a
dail
y ba
sis
and
the
tim
e-se
ries
ave
rage
is c
alcu
late
d fo
r ea
ch o
f th
e fo
ur p
ost-
IPO
trad
ing
peri
ods
(the
fir
st 5
, 30,
90
and
180
days
). F
inal
ly, c
ross
-sec
tion
al s
tati
stic
s ar
e co
mpu
ted
for
the
rati
os f
or e
ach
peri
od a
nd th
e ap
prop
riat
e st
atis
tica
l tes
t is
cond
ucte
d. T
he n
ull
hypo
thes
is th
at th
e cr
oss-
sect
iona
l mea
n (m
edia
n) is
equ
al to
one
aga
inst
an
appr
opri
ate
alte
rnat
ive
is te
sted
usi
ng a
t– (
Wil
coxo
n) te
st.
Multinational Finance Journal224
daily values then are averaged for each IPO over the number of days ineach of the four post-IPO trading periods. Sample statistics are thencalculated cross-sectionally and appear in table 3. Initially, for eachIPO, the time-series mean of the dollar volume of daily trades(un)differentiated by trade direction is determined for each stock foreach of the four periods. Differentiating by trade direction involvesclassifying each trade as a buy or sell according to the Lee and Ready(1991) algorithm.
As expected, the dollar volume of trades per day for the first fivedays of trading in the life of an IPO is large relative to the means for thefirst thirty days and for longer periods. The distribution of the dollarvolume of trades, dollar volume of buys and dollar volume of sells isskewed with the mean not only exceeding the median in every case butalso exceeding the 75th percentile (not shown) in the majority of cases.There is rarely much of a further decline in the mean or median afterday ninety. Volatility, as measured by the standard deviation of thecross-section of company means, declines rapidly after day five andexhibits some stability and even limited growth after day ninety.
The post-decimalization period is distinguished by a dramaticincrease in the dollar volume of trades, dollar volume of buys and dollarvolume of sells compared to respective pre-decimalization levels foreach of the four post-IPO trading periods. The mean dollar volume oftrades for the five-day post-IPO period in the post-decimalization period(4.79 million) is more than four times the corresponding mean in thepre-decimalization period (1.08 million). This increased trade activityremains relatively stable for all four post-IPO periods, and is due at leastin part to the dot-com boom at the end of the millennium. The mediandollar volume of trades for the 180-day post-IPO period is only 188,768(coupled with a median number of daily trades of only 14.87), whichsuggests that many of the IPO’s are thinly traded. The dollar volume ofdaily buys never exceeds the corresponding dollar volume of daily sells,and this is true in both pre- and post-decimalization periods.
The rightmost four columns under the heading “Dollar VolumeRatios” in table 3 contain cross-sectional statistical tests of ratios ofdollar volume of buys to dollar volume of sells. While qualitativelysimilar results for dollar volume ratios and trade frequency ratios (notshown) are obtained, there is one notable exception. While the mean(median) number of buys is larger (and predominantly statisticallysignificant) compared to the mean (median) number of sells for eachpost-IPO period following the onset of decimalization, such is not the
225Canadian IPO’s Stock Behavior
TA
BL
E 4
.St
atis
tica
l Tes
ts F
or I
PO
Vol
ume
Rat
ios
Dol
lar
Vol
ume
Dol
lar
Vol
ume
of B
uys
Dol
lar
Vol
ume
of S
ells
5/30
5/90
5/18
030
/180
90/1
805/
305/
905/
180
30/1
8090
/180
5/30
5/90
5/18
030
/180
90/1
80
Ful
l Per
iod
Mea
n2.
16c
3.40
c4.
23c
1.82
c1.
20c
2.06
c3.
22c
4.03
c1.
79c
1.20
c2.
19c
3.51
c4.
40c
1.86
c1.
21c
Med
ian
2.12
c3.
04c
3.61
c1.
77c
1.24
c2.
00c
2.74
c3.
16c
1.66
c1.
25c
2.19
c3.
11c
3.77
c1.
81c
1.25
c
Std
. Dev
.0.
942.
123.
160.
840.
311.
062.
383.
520.
970.
351.
052.
323.
400.
880.
33P
re-d
ecim
aliz
atio
nM
ean
1.93
c2.
82c
3.51
c1.
70c
1.21
c1.
85c
2.69
c3.
36c
1.66
c1.
20c
1.95
c2.
91c
3.66
c1.
74c
1.21
c
Med
ian
1.85
c2.
50c
2.79
c1.
67c
1.25
c1.
82c
2.20
c2.
48c
1.53
c1.
24c
1.88
c2.
62c
2.72
c1.
71c
1.24
c
Std
. Dev
.0.
861.
822.
680.
770.
300.
972.
053.
030.
930.
340.
981.
972.
970.
820.
32P
ost-
deci
mal
izat
ion
Mea
n2.
59c
4.47
c5.
58c
2.05
c1.
20c
2.45
c4.
21c
5.29
c2.
05c
1.21
c2.
64c
4.63
c5.
79c
2.09
c1.
21c
Med
ian
2.60
c4.
32c
4.98
c1.
99c
1.23
c2.
40c
3.74
c4.
08c
1.97
c1.
28c
2.69
c4.
55c
4.91
c2.
09c
1.26
c
Std
. Dev
.0.
942.
243.
530.
900.
331.
122.
633.
991.
000.
371.
052.
503.
710.
940.
34
Not
e: a
, b a
nd c
indi
cate
sig
nifi
canc
e at
the
0.10
, 0.0
5 an
d 0.
01 le
vels
, res
pect
ivel
y, u
sing
a t–
test
for
the
mea
n ra
tios
and
usi
ng a
Wil
coxo
nte
st f
or th
e m
edia
n ra
tios
. Thi
s ta
ble
repo
rts
thre
e su
mm
ary
stat
isti
cs (m
ean,
med
ian
and
stan
dard
dev
iati
on) f
or th
e cr
oss-
sect
iona
l dis
trib
utio
nsof
the
rati
os f
or th
e ti
me-
seri
es a
vera
ge d
olla
r vo
lum
es o
f tr
ades
und
iffe
rent
iate
d an
d di
ffer
enti
ated
as
buys
or
sell
s fo
r th
e sa
mpl
e of
359
IP
O’s
for v
ario
us p
airi
ngs
of th
e fi
rst 5
, 30,
90
and
180
days
of t
radi
ng p
ost-
IPO
for t
he e
ntir
e pe
riod
and
for t
he p
erio
ds b
efor
e an
d af
ter t
he in
trod
ucti
onof
dec
imal
izat
ion
by th
e T
oron
to S
tock
Exc
hang
e (T
SX
) on
Apr
il 1
5, 1
996.
Buy
s an
d se
lls
are
infe
rred
usi
ng th
e al
gori
thm
of
Lee
and
Rea
dy(1
991)
. For
eac
h IP
O, t
he d
olla
r vo
lum
es o
f tr
ades
are
fir
st a
ggre
gate
d on
a d
aily
bas
is, t
hen
the
tim
e-se
ries
ave
rage
is c
alcu
late
d fo
r ea
ch o
f th
efo
ur p
ost-
IPO
trad
ing
peri
ods,
and
fina
lly
the
rati
o of
the
tim
e-se
ries
ave
rage
s fo
r var
ious
pai
rs o
f the
four
pos
t-IP
O tr
adin
g pe
riod
s ar
e co
mpu
ted.
Thu
s, “
5/30
” in
dica
tes
a co
mpa
riso
n in
volv
ing
the
firs
t fiv
e-to
-30
days
of
trad
ing
post
-IP
O f
or th
e re
spec
tive
dol
lar v
olum
e of
trad
e m
etri
c. T
henu
ll h
ypot
hesi
s th
at th
e cr
oss-
sect
iona
l mea
n (m
edia
n) is
equ
al to
one
aga
inst
an
appr
opri
ate
alte
rnat
ive
is te
sted
usi
ng a
t– (
Wil
coxo
n) te
st.
Multinational Finance Journal226
8. Two outliers were removed from the analysis for the five-day ratio of the dollarvolume of buys to the dollar volume of sells. One company (MNT Limited) had over$252,000 of buyer initiated trades in the five-day period versus less than $3,000 of sellerinitiated trades and produced a ratio that was close to 86. Another company (MajesticElectronic) had a ratio that was in excess of 8. These two extreme values had little effect onthe nonparametric test but when included, they inflated the standard deviation dramatically(4.59 for the full period and 5.65 for the pre-decimalization period) thereby producing aninsignificant t-statistic.
9. All ratios are strongly significant for both tests due in large part to the relatively
case for dollar volume of buys versus dollar volume of sells. The dollarvolume of sells is always larger than that of buys for each post-IPOperiod with the ratio of buys to sells being generally significantlydifferent from one at the 5% level or better. This suggests thatinstitutional investors are active on the sell side. While this observationis compelling, its verification is left for future research.8
A series of statistical tests for the ratios for each of the three dollarvolume variables (undifferentiated and differentiated as buys and sells)for various pairs of post-IPO periods are conducted next by firstdividing, for example, the five-day mean dollar volume of trades by its30-day counterpart for each IPO. A cross sectional mean (median) foreach ratio for each trade activity metric is then calculated and aparametric t-test (a nonparametric Wilcoxon test) of the null hypothesisthat the mean (median) is equal to one against an appropriate alternativeis performed. The comparisons are, in turn, for the first five dayscompared to the first 30, 90 and 180 days, and for the first 30 dayscompared to the first 180 days, and for the first 90 days compared to thefirst 180 days. Results appear in table 4.
Both statistical tests indicate that the ratios comparing the first fivetrading days post-IPO are significantly different from one at the 0.01level for all three trade activity metrics. Furthermore, the magnitudes ofthese ratios for each metric increase monotonically as the first fivetrading days are compared in succession to its counterpart for the first30, 90 and 180 trading days post-IPO. The ratios for the first 30-to-180trading days are significantly different from one for each trade activitymetric, and are generally less than two for the full period as well as forthe pre- and post-decimalization periods. Similar comments can be madewhen considering the ratios for the first 90-to-180 trading days for eachof the three trade activity metrics. Mean and median levels for eachmetric are only about 20% larger for the first 90 versus the first 180trading days post-IPO.9
227Canadian IPO’s Stock Behavior
small degree of variability that exists in each of the sets of ratios for each pairing of post-IPOtime periods. From the full sample of 359 IPO’s, twenty stocks were issued in 1995 and 1996and overlapped the April 15, 1996 change to decimalization. As a robustness check, all ratiosare re-computed with these twenty stocks excluded. Although the ratios change marginally,all ratios remain statistically significant at the 0.01 level.
10. Goldstein and Kavajecz (2000) observe a decrease in depth when most NYSE stocksmoved to a 1/16th minimum price increment in June 1997.
V. Quoted Depth and the Bid-Ask Spread
Liquidity is an important aspect of any well functioning market. This istrue in particular for new stocks where the efficiency of the pricediscovery process may be hampered by restrictions encountered byinvestors seeking to acquire or sell their shares. As documentedpreviously, the dollar volume of shares traded and the number of tradesare exceptionally large during the early days of secondary markettrading. It is not surprising therefore to observe that the number ofshares made available for trading by suppliers of liquidity is initiallylarge and declines significantly over time. As is shown in table 5, meandepth for the first five days (90,840) is accompanied by similarly largemean depths pre- and post-decimalization (105,073 and 64,197,respectively). These levels decrease monotonically as the post-IPOwindow is extended to day180. The decline in depth post-decimalizationis inconsistent with the argument advanced by Harris (1994) for changesin tick sizes (i.e., price discreteness) who suggests that ceteris paribuswhen the price of liquidity (i.e., the spread) is reduced, the quantitysupplied will fall.10 The decline in depth post-decimalization may alsoimply that institutional investors bear higher trading costs for CanadianIPO’s as large orders are fractured when met by inadequate supply at agiven price.
There are several potentially important conclusions that can beextracted from an examination of the four spread measures appearing intable 5. Consistent with the large initial trading volume, dollar quotedspreads are smallest for the period ending at day 5 according to bothmetrics (mean and median) for the full period (0.176 and 0.150). Thisis also true pre- and post-decimalization. This measure jumps noticeablyfor the mean (0.273) and median (0.234) for the full period for the first180 days as well as during the pre- (0.248 and 0.224) andpost-decimalization (0.319 and 0.277) periods. The increase is steadyover the 30, 90 and 180 days periods. The post-decimalization dollar
Multinational Finance Journal228
TA
BL
E 5
.IP
O D
epth
and
Spr
ead
Stat
isti
cs
Quo
ted
Dep
thD
olla
r Q
uote
d S
prea
dP
ropo
rtio
nal Q
uote
d S
prea
d
Sta
tist
ic5
3090
180
530
9018
05
3090
180
For
Ful
l Per
iod
Mea
n90
840
5366
937
695
3250
60.
1755
0.21
040.
2473
0.27
260.
0206
0.02
430.
0290
0.03
27M
edia
n43
513
3112
325
234
2218
20.
1498
0.18
180.
2099
0.23
440.
0177
0.02
150.
0254
0.02
80S
td. D
ev.
1574
2481
547
5126
943
121
0.14
750.
2039
0.18
930.
1821
0.01
470.
0155
0.01
870.
0224
For
Pre
-dec
imal
izat
ion
Per
iod
Mea
n10
5073
5815
039
495
3294
50.
1726
0.19
410.
2241
0.24
790.
0218
0.02
470.
0279
0.03
04M
edia
n40
847
3057
225
116
2215
20.
1555
0.18
310.
2047
0.22
390.
0197
0.02
290.
0254
0.02
81S
td. D
ev.
1850
1893
293
5745
847
535
0.08
130.
0947
0.11
420.
1539
0.01
260.
0139
0.01
500.
0160
For
Pos
t-de
cim
aliz
atio
n P
erio
dM
ean
6419
745
279
3432
731
684
0.18
070.
2410
0.29
070.
3189
0.01
830.
0235
0.03
120.
0371
Med
ian
4563
531
439
2540
722
883
0.11
970.
1688
0.23
230.
2774
0.01
450.
0182
0.02
600.
0273
Std
. Dev
.78
287
5230
236
981
3348
70.
2245
0.31
910.
2758
0.21
930.
0179
0.01
820.
0241
0.03
06
(Con
tinu
ed)
229Canadian IPO’s Stock Behavior
TA
BL
E 5
.(C
onti
nued
)
Dol
lar
Eff
ecti
ve S
prea
dP
ropo
rtio
nal E
ffec
tive
Spr
ead
Sta
tist
ic5
3090
180
530
9018
0F
or F
ull P
erio
dM
ean
0.14
300.
1691
0.19
320.
2095
0.01
650.
0187
0.02
240.
0248
Med
ian
0.12
540.
1408
0.15
980.
1776
0.01
450.
0159
0.01
930.
0215
Std
. Dev
.0.
1221
0.21
640.
1767
0.13
820.
0130
0.01
160.
0144
0.01
61F
or P
re-d
ecim
aliz
atio
n P
erio
dM
ean
0.13
770.
1487
0.16
840.
1830
0.01
750.
0188
0.02
140.
0228
Med
ian
0.12
740.
1385
0.15
450.
1677
0.01
550.
0164
0.01
860.
0209
Std
. Dev
.0.
0665
0.07
370.
0798
0.08
740.
0140
0.01
060.
0126
0.01
17F
or P
ost-
deci
mal
izat
ion
Per
iod
Mea
n0.
1529
0.20
760.
2399
0.25
940.
0147
0.01
880.
0244
0.02
88M
edia
n0.
1043
0.14
380.
1881
0.22
380.
0121
0.01
570.
0207
0.02
23S
td. D
ev.
0.18
610.
3505
0.27
370.
1923
0.01
080.
0133
0.01
710.
0216
Not
e: T
his
tabl
e re
port
s va
riou
s cr
oss-
sect
iona
l sta
tist
ics
for
aver
age
dept
h an
d va
riou
s sp
read
mea
sure
s fo
r th
e sa
mpl
e of
359
IPO
’s fo
r the
firs
t 5, 3
0, 9
0 an
d 18
0 da
ys o
f tra
ding
pos
t-IP
O fo
r the
ent
ire
peri
od a
nd fo
r the
per
iods
bef
ore
and
afte
r the
intr
oduc
tion
of d
ecim
aliz
atio
n by
the
Tor
onto
Sto
ck E
xcha
nge
(TS
X)
on A
pril
15,
199
6. Q
uote
d D
epth
s ar
e fi
rst a
ggre
gate
d on
a d
aily
bas
is f
or e
ach
IPO
, and
then
the
tim
e-se
ries
aver
age
is c
alcu
late
d fo
r eac
h IP
O fo
r eac
h of
the
four
pos
t-IP
O p
erio
ds.
A s
imil
ar a
ppro
ach
is ta
ken
for e
ach
of th
e sp
read
mea
sure
s. T
he D
epth
vari
able
is c
alcu
late
d fr
om th
e fo
rmul
a: Q
uote
d D
epth
=[(
bid
* bi
d si
ze+
ask
* a
sk s
ize)
/2].
The
Dol
lar
Quo
ted
Spr
ead
is s
impl
y th
e di
ffer
ence
betw
een
the
ask
and
the
bid.
The
Pro
port
iona
l Quo
ted
Spr
ead
is e
qual
to th
e D
olla
r Quo
ted
Spr
ead
divi
ded
by th
e m
id s
prea
d. T
he D
olla
r Eff
ecti
veS
prea
d is
the
abso
lute
val
ue o
f th
e di
ffer
ence
bet
wee
n th
e tr
ansa
ctio
n pr
ice
and
the
mid
spr
ead.
Fin
ally
, the
Pro
port
iona
l Eff
ecti
ve S
prea
d is
the
Dol
lar
Eff
ecti
ve S
prea
d di
vide
d by
the
mid
spr
ead.
Multinational Finance Journal230
11. The trade costs, on average, for a typical IPO (i.e., based on the medians) in thepost-decimalization period for each of the post-IPO periods for both trader situations arelower than those reported in the text for an average IPO (i.e., based on the means) due to theright skewness (mean greater than the median) that exists in all of the trade cost distributionsfor the post-decimalization period.
12. Similar to the analysis done for dollar volume (and number of trades), tests ofsignificance of depth and the four spread variables for the first 5 days compared to the first90 and 180 days, for the first 30 days compared to the first 180 days, and for the first 90 days
quoted spread is generally larger than the similar pre-decimalizationvalue. This apparently anomalous finding can be explained by notingthat this measure does not adjust for price and the post-decimalizationperiod is influenced in particular by significant price inflation during thetelecom/tech boom. The proportional quoted spread does adjust forprice and a monotonic increase at each point in time for the full periodas well as for the pre- and post-decimalization periods is accompaniedby larger pre-decimalization values for the post-IPO periods ending atday 5 and day 30 in particular.
The dollar effective spread and the proportional effective spread alsoare shown in table 5. Consistent monotonic increases in both spreadvariables can also be observed for periods out to day 180. It isinteresting to note that for the proportional effective spread, pre- andpost-decimalization values are similar for the post-IPO period ending atday 5 and are in fact identical for the period ending at day 30. What iseven more relevant for investors is the observation that secondarymarket trading over the first nine calendar months generates materialround-trip trade costs before accounting for brokerage commissions. Toillustrate, an investor who used a similar mix of executed market andlimit orders for the IPO’s in the post-decimalization period paid, onaverage, round trip trade costs of 1.47%, 1.88%, 2.44% and 2.88% overthe first 5, 30, 90 and 180 days, respectively, of post-IPO trading for anaverage IPO. Similarly, a less patient investor who always tradedagainst the posted quotes (i.e., used market orders) in thepost-decimalization period paid, on average, round trip trade costs of1.83%, 2.35%, 3.12% and 3.71% over the first 5, 30, 90 and 180 days,respectively, of post-IPO trading for an average IPO.11 Thus, therelatively high cost of trading before accounting for brokeragecommissions for Canadian IPO’s coupled with generally low or negativereturns for investors who do not purchase shares in the primary market,suggest that the majority of new issues will be poor performers in theshort run.12
231Canadian IPO’s Stock Behavior
compared to the first 180 days also were conducted. Since these were all significant at lessthan 1%, the discussion and the associated tables have been suppressed to save space.
FIGURE 2. — Median Daily Percentage Amortized Spreads Over the180 Event Days Post IPO For 359 TSX IPO’s Issued During1984–2002.
VI. The Amortized Spread
The amortized spread is investigated next. Most empirical studies thatconsider the importance of the bid-ask spread in asset pricing ignore theimpact of amortizing the cost of the spread over investors’ holdingperiods. Chalmers and Kadlec (1998) find that the amortized spread isquite small in a study of AMEX and NYSE stocks over the period1983-1992. The amortized spread at the end of day T is summed over alldaily trades (τ) and is defined as:
(1)1t t t
tT
T T
P M VAS
P SO
τ
=
−=∑
where *Pt – Mt* is the absolute value of the effective spread (i.e., theabsolute value of the transaction price less the prevailing mid-spread),Vt is the volume of shares associated with each trade, and PT SOT
represents the firm’s market value of equity at the end of day T. Table6 contains summary statistics for the amortized spread for the fullsample at different points of time as well as for the samples of pre- and
Multinational Finance Journal232
TA
BL
E 6
.IP
O A
mor
tize
d Sp
read
Sta
tist
ics
and
Stat
isti
cal T
ests
Am
orti
zed
Spr
ead
(%)
× 1
03A
mor
tize
d S
prea
d C
ompa
riso
ns (
%)
× 1
03
Sta
tist
ic5
3090
180
5/30
5/90
5/18
030
/180
90/1
80F
or F
ull P
erio
dM
ean
6.50
772.
7996
2.20
642.
0880
0.37
02c
0.43
01c
0.44
18c
0.07
12c
0.01
18a
Med
ian
4.21
512.
1894
1.80
401.
6174
0.18
64c
0.21
60c
0.22
93c
0.04
81c
0.01
72a
Std
. Dev
.7.
9697
2.41
711.
9076
1.91
620.
6099
0.70
730.
7262
0.19
040.
1209
For
Pre
-dec
imal
izat
ion
Per
iod
Mea
n6.
0198
2.81
992.
2556
2.00
190.
3190
c0.
3764
c0.
4016
c0.
0818
c0.
0254
c
Med
ian
3.89
342.
2157
1.86
901.
6870
0.15
44c
0.19
45c
0.20
18c
0.04
98c
0.01
90c
Std
. Dev
.7.
5368
2.41
751.
8149
1.48
440.
5716
0.66
460.
6862
0.17
170.
0872
For
Pos
t-de
cim
aliz
atio
n P
erio
dM
ean
7.41
732.
7617
2.11
432.
2492
0.46
56c
0.53
03c
0.51
68c
0.05
12c
–0.0
135
Med
ian
4.69
862.
1823
1.58
611.
6015
0.66
75c
0.29
22c
0.27
06c
0.04
32c
0.01
18b
Std
. Dev
.8.
6779
2.42
562.
0745
2.53
390.
6675
0.77
340.
7930
0.22
050.
1641
Not
e: a
, b a
nd c
indi
cate
sig
nifi
canc
e at
the
0.10
, 0.0
5 an
d 0.
01 le
vel r
espe
ctiv
ely,
usi
ng a
t–te
st fo
r the
mea
n di
ffer
ence
s an
d us
ing
a W
ilco
xon
test
for
the
med
ian
diff
eren
ces.
Thi
s ta
ble
repo
rts
vari
ous
cros
s-se
ctio
nal s
tati
stic
s fo
r th
e av
erag
e am
orti
zed
spre
ad f
or th
e sa
mpl
e of
359
IP
O’s
for
the
firs
t 5,
30,
90
and
180
days
of
trad
ing
post
-IP
O f
or t
he e
ntir
e pe
riod
and
for
the
sam
e pe
riod
s be
fore
and
aft
er t
he i
ntro
duct
ion
ofde
cim
aliz
atio
n by
the
Tor
onto
Sto
ck E
xcha
nge
(TS
X) o
n A
pril
15,
199
6. U
nder
the
four
col
umns
hea
ded
by “
Am
orti
zed
Spr
ead”
, am
orti
zed
spre
ads
are
firs
t agg
rega
ted
on a
dai
ly b
asis
for e
ach
IPO
, and
then
the
tim
e-se
ries
ave
rage
is c
alcu
late
d fo
r eac
h IP
O fo
r eac
h of
the
four
pos
t-IP
O p
erio
ds.
Fin
ally
, the
cro
ss-s
ecti
onal
mea
ns, m
edia
ns a
nd s
tand
ard
devi
atio
ns o
f the
se c
ross
-sec
tion
al a
vera
ges
are
calc
ulat
ed a
nd th
en s
cale
d by
mul
tipl
ying
each
res
ult
by 1
03 . U
nder
the
fiv
e co
lum
ns h
eade
d by
“A
mor
tize
d S
prea
d C
ompa
riso
ns”,
sum
mar
y st
atis
tics
(sc
aled
by
a fa
ctor
of
103 )
for
the
diff
eren
ces
betw
een
the
cros
s-se
ctio
nal
aver
ages
for
var
ious
pai
rs o
f th
e fo
ur p
ost-
IPO
tra
ding
per
iods
are
rep
orte
d. T
hus,
“5/
30”
indi
cate
s a
com
pari
son
invo
lvin
g th
e fi
rst
five
-to-
30 d
ays
of t
radi
ng p
ost-
IPO
for
the
res
pect
ive
amor
tize
d sp
read
sta
tist
ic.
The
nul
l hy
poth
esis
tha
t th
ecr
oss-
sect
iona
l mea
n (m
edia
n) is
equ
al to
zer
o is
test
ed u
sing
a t–
(W
ilco
xon)
test
.
233Canadian IPO’s Stock Behavior
13. The median daily pre- and post-decimalization amortized spreads have been omittedfrom figure 2 for this reason.
post-decimalization new issues. Tests of significance for comparisonsof amortized spreads over four post-IPO periods are also shown.
The mean (median) amortized spread in the initial 5 days of IPOtrading is relatively large at a scaled (by 1,000) percent value of 6.5077(4.2151). This is due in large part to the substantially higher level ofshare turnover on the first day of secondary market trading. Figure 2makes this last observation even more apparent as the median day-oneamortized spread for the full sample is large at 8 percent (scaled) andthen declines rapidly and remains fairly stable at less than 0.5 percent(scaled) after day 30. Post-decimalization day one amortized spreads arerelatively large at a scaled 12.81 percent compared to pre-decimalizationday-one amortized spreads (scaled to 6.46 percent). After day one thereis virtually no difference between median daily pre- andpost-decimalization amortized spreads.13
After day 5 mean (median) amortized spreads decline noticeably outto day 30 and then level off. A similar pattern is obtained for the pre-and post-decimalization issues although the post-decimalization mean(median) is higher in the initial 5-day period.
Statistical tests for comparisons between mean amortized spreads atvarious post-IPO points in time appear in table 6. Apart from threespecific comparisons, all remaining comparisons indicate significantdifferences according to both parametric and nonparametric tests at lessthan the 0.01 level. The median difference between the mean 90-dayamortized spread and the mean 180-day amortized spread is significantat the 0.10 level. The post-decimalization mean difference between themean 90-day amortized spread and the mean 180-day amortized spreadis not significant at all while the median for the samepost-decimalization comparison is significant at the 0.05 level.
VII. Concluding Remarks
Through the examination of 359 TSX listed IPO’s over the period1984-2002 several important findings emerge. First, an investigation offirst day returns indicates how difficult it is to earn positive meanreturns even when an IPO is purchased at the offer price. While thepurchase of every IPO produces an average initial day return (pre-trade
Multinational Finance Journal234
costs) of 6.65 percent, the purchase of a typical IPO only produces acorresponding return of 0.2 percent. Subsequent average daily returnsare not statistically different from zero. Furthermore, missing out on thebest initial performing IPO’s but investing in more than three-quartersof the remaining sample can produce negative first day returns evenwhen trade costs are ignored.
Second, the mean dollar volume of trades per day for the first fivedays of IPO trading is large relative to the means for the first thirty daysand for longer periods. The distribution of the dollar volume of trades,dollar volume of buys and dollar volume of sells is right skewed andlevels off after day ninety. A similar decay is observed for dollarvolume volatility over the same initial time period.
Third, following the move to decimalization in April of 1996 by theTSX, there is a dramatic increase in the dollar volume of trades, dollarvolume of buys and dollar volume of sells compared to respectivepre-decimalization levels for each of the four post-IPO trading periodsexamined herein. Even though trade activity increasespost-decimalization it appears that many of the IPO’s are still thinlytraded.
Qualitatively similar results for number of trades are obtained withone apparent exception. While the mean (median) number of buys islarger (and generally significant) compared to the mean (median)number of sells for each post-IPO period following the onset ofdecimalization, such is not the case for a comparison between the dollarvolume of buys and the dollar volume of sells. The dollar volume ofsells is always larger than that of buys for each post-IPO period with theratio of buys to sells being generally significantly different from one. Inturn, this suggests that institutional investors may be active on the sellside. This observation will be explored in greater detail in subsequentresearch.
Fourth, a series of parametric and nonparametric tests are conductedfor the ratios for each of three dollar volume variables for the first fivedays compared to the first 30, 90 and 180 days, and for the first 30 dayscompared to the first 180 days, and for the first 90 days compared to thefirst 180 days. Both statistical tests indicate that the ratios comparingthe first five trading days post-IPO are significantly different from onefor three trade activity metrics. Furthermore, the magnitudes of theseratios for each metric increase monotonically as the first five tradingdays are compared in succession to counterparts for the first 30, 90 and180 trading days post-IPO.
235Canadian IPO’s Stock Behavior
Fifth, liquidity is examined via depth and spread measures. Depth isinitially large and declines significantly over time. The observed declinein depth post-decimalization suggests that institutional investors arelikely to bear higher trading costs for Canadian IPO’s as large orders aresplit up due to inadequate supply at a given price. Dollar quoted spreadsare smallest at day 5 both pre- and post-decimalization withpost-decimalization values exceeding those during thepre-decimalization period due at least in part to significant priceinflation during the telecom/tech boom. On the other hand, proportionalquoted spreads increase monotonically at each point in time for the fullperiod as well as for the pre- and post-decimalization periods.
Secondary market trading in IPO’s over the first nine calendarmonths can generate substantial round-trip trade costs before brokeragecommissions that can, for example, be in excess of 3.7 percent for theleast patient traders for an average IPO. The relatively high costs oftrading together with the material probability of low or negative grossreturns make it difficult for investors transacting in secondary marketsto earn short-run profits in Canadian IPO’s.
Sixth, an examination of the amortized spread in the first 5 days ofIPO trading for the full sample and for pre- and post-decimalizationperiods suggest that high initial turnover is the cause of unusually highinitial amortized spreads. These elevated levels quickly decline andstabilize after day 30. Furthermore virtually no difference existsbetween median daily pre- and post-decimalization amortized spreadsafter day one.
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