The Journal of Finance

The Determinants of Underpricing for Seasoned Equity Offers

Published: 09/11/2003   |   DOI: 10.1111/1540-6261.00604

Shane A. Corwin

Seasoned offers were underpriced by an average of 2.2 percent during the 1980s and 1990s, with the discount increasing substantially over time. The increase appears to be related to Rule 10b‐21 and to economic changes affecting both IPOs and SEOs. Consistent with temporary price pressure, underpricing is positively related to offer size especially for securities with relatively inelastic demand. Underpricing is also positively related to price uncertainty and, after Rule 10b‐21, to the magnitude of preoffer returns. Additionally, I find that underpricing is significantly related to underwriter pricing conventions such as price rounding and pricing relative to the bid quote.

Differences in Trading Behavior across NYSE Specialist Firms

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00123

Shane A. Corwin

Using a sample of NYSE‐listed equities from 1992, this study examines whether market maker performance differs across specialist firms. We find that spreads and depth differ across specialist firms, but the competitiveness of NYSE quotes relative to other exchanges does not appear to be affected by these differences. Differences are also evident in measures of transitory volatility and in the frequency and duration of order‐imbalance trading halts. The results suggest that specialists have a significant effect on execution costs, liquidity, and noise in security prices and that these effects are not completely eliminated by competition or the NYSE's monitoring mechanisms.

A Simple Way to Estimate Bid‐Ask Spreads from Daily High and Low Prices

Published: 03/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01729.x

SHANE A. CORWIN, PAUL SCHULTZ

We develop a bid‐ask spread estimator from daily high and low prices. Daily high (low) prices are almost always buy (sell) trades. Hence, the high–low ratio reflects both the stock's variance and its bid‐ask spread. Although the variance component of the high–low ratio is proportional to the return interval, the spread component is not. This allows us to derive a spread estimator as a function of high–low ratios over 1‐day and 2‐day intervals. The estimator is easy to calculate, can be applied in a variety of research areas, and generally outperforms other low‐frequency estimators.

The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition

Published: 07/20/2005   |   DOI: 10.1111/j.1540-6261.2005.00735.x

SHANE A. CORWIN, PAUL SCHULTZ

We examine syndicates for 1,638 IPOs from January 1997 through June 2002. We find strong evidence of information production by syndicate members. Offer prices are more likely to be revised in response to information when the syndicate has more underwriters and especially more co‐managers. More co‐managers also result in more analyst coverage and additional market makers following the IPO. Relationships between underwriters are critical in determining the composition of syndicates, perhaps because they mitigate free‐riding and moral hazard problems. While there appear to be benefits to larger syndicates, we discuss several factors that may limit syndicate size.

Limited Attention and the Allocation of Effort in Securities Trading

Published: 11/11/2008   |   DOI: 10.1111/j.1540-6261.2008.01420.x

SHANE A. CORWIN, JAY F. COUGHENOUR

While limited attention has been analyzed in a variety of economic and psychological settings, its impact on financial markets is not well understood. In this paper, we examine individual NYSE specialist portfolios and test whether liquidity provision is affected as specialists allocate their attention across stocks. Our results indicate that specialists allocate effort toward their most active stocks during periods of increased activity, resulting in less frequent price improvement and increased transaction costs for their remaining assigned stocks. Thus, the allocation of effort due to limited attention has a significant impact on liquidity provision in securities markets.

Order Flow and Liquidity around NYSE Trading Halts

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00267

Shane A. Corwin, Marc L. Lipson

We study order flow and liquidity around NYSE trading halts. We find that market and limit order submissions and cancellations increase significantly during trading halts, that a large proportion of the limit order book at the reopen is composed of orders submitted during the halt, and that the market‐clearing price at the reopen is a good predictor of future prices. Depth near the quotes is unusually low around trading halts, though specialists and/or floor traders appear to provide additional liquidity at these times. Finally, specialists appear to “spread the quote” prior to imbalance halts to convey information to market participants.

Can Brokers Have It All? On the Relation between Make‐Take Fees and Limit Order Execution Quality

Published: 05/23/2016   |   DOI: 10.1111/jofi.12422

ROBERT BATTALIO, SHANE A. CORWIN, ROBERT JENNINGS

We identify retail brokers that seemingly route orders to maximize order flow payments, by selling market orders and sending limit orders to venues paying large liquidity rebates. Angel, Harris, and Spatt argue that such routing may not always be in customers’ best interests. For both proprietary limit order data and a broad sample of trades from TAQ, we document a negative relation between several measures of limit order execution quality and rebate/fee level. This finding suggests that order routing designed to maximize liquidity rebates does not maximize limit order execution quality and thus brokers cannot have it all.

Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00466

William G. Christie, Shane A. Corwin, Jeffrey H. Harris

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news‐related trading halts on Nasdaq. For intraday halts that reopen after only a five‐minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90‐minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.

The Development of Secondary Market Liquidity for NYSE‐Listed IPOs

Published: 11/27/2005   |   DOI: 10.1111/j.1540-6261.2004.00701.x

SHANE A. CORWIN, JEFFREY H. HARRIS, MARC L. LIPSON

For NYSE‐listed IPOs, limit order submissions and depth relative to volume are unusually low on the first trading day. Initial buy‐side liquidity is higher for IPOs with high‐quality underwriters, large syndicates, low insider sales, and high premarket demand, while sell‐side liquidity is higher for IPOs that represent a large fraction of outstanding shares and have low premarket demand. Our results suggest that uncertainty and offer design affect initial liquidity, though order flow stabilizes quickly. We also find that submission strategies are influenced by expected underwriter stabilization and preopening order flow contains information about both initial prices and subsequent returns.