| Article ID: | iaor201112332 |
| Volume: | 34 |
| Issue: | 1 |
| Start Page Number: | 103 |
| End Page Number: | 130 |
| Publication Date: | Mar 2011 |
| Journal: | Journal of Financial Research |
| Authors: | Ligon James A, Liu Hao-Chen |
| Keywords: | stock market |
We use a natural experiment resulting from the 1997 Securities and Exchange Commission rule mandating a change in the order‐handling rules (OHR) for all NASDAQ stocks to test whether secondary market structure affects initial public offering (IPO) underpricing. We find that the increase in liquidity that the OHR represent led to a decrease in underpricing for cold NASDAQ IPOs, suggesting that when liquidity is lowest, changes in market liquidity display a negative relation to initial returns.