Abstract
We study the levels of lit and dark fragmentation in IPOs. Using a sample of 451 IPOs, we find that measures of dark and lit fragmentation are higher in underpriced issues. We further test the claim that IPO price uncertainty is not fully resolved at the offering and that this ex-post uncertainty is related to aftermarket fragmentation. Our analysis shows that fragmentation, both lit and dark, contribute to this ex-post uncertainty, resulting in greater underpricing. We also document that measures of hidden, algorithmic, and retail trading are higher among underpriced issues. Further, our results indicate that algorithmic trading is relatively low around the offering, increasing in the later periods of IPO trading. Finally, we show that measures of dark and hidden trading exhibit inverse patterns around the offering, confirming that the two forms of dark trading are substitutes rather than complements.
Published Version
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