An Analysis of Flipping Activity in Early Aftermarket Trading



This paper analyses the flipping activities of Initial Public Offerings (IPOs) in early aftermarket trading. The main focus of the study is on what type of investors, institutional or retail, trade more aggressively. We examine ownership records for all investors in IPOs issued on the Helsinki Stock Exchange (HEX) during the period of May 1995 to June 2000. Consistent with the prior IPO literature, we document that underwriters favour more institutional investors than retail investors in the allocation process. We find that on average institutional investors flip more of their allocated shares than retail investors. However, conditioning on issue size, institutional investors flip more than retail investors only in large issues. Newly issued shares are flipped more profoundly in hot than in cold IPO markets, and institutional investors account for more of this selling. Since the overall flipping activities by institutional investors have a positive relation to initial return (slightly stronger than retail) and are significantly larger, institutional investors are less interested in flipping of cold IPOs’ issues. Conditioning institutional flipping activity on underpricing and size, we thus find that institutional investors show some loyalty to the underwriter by selling less aggressively smaller and weaker IPOs.
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Ingolf Dittmann