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Paper – Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO

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In a Relationship: Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO, Thomas Eisenbach, David Lucca, and Karen Shen. Federal Reserve Bank of New York

  • “Stocks are usually offered in initial public offerings (IPOs) at a discount, leading to large first-day IPO returns. When there is a risk of a negative initial return, underwriters are known to actively support the aftermarket price of a stock through buying activities. In this post, we look at the trading book for Facebook stock on May 18, 2012, the day of its highly anticipated IPO. Using what we call a “large integer–price bid” identification assumption to indirectly infer which investors are bidding, we find evidence of significant trading by underwriters seeking to stabilize the stock’s price. This evidence suggests that underwriters incurred significant costs as a result of these activities.”
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