Commission Regulation (EC) No 2273/2003 regulates price stabilisation activities for equity initial public offerings (IPOs) in Europe as a form of permitted market manipulation. To test the actual practices and effects of stabilisation we empirically analyse the support provided by underwriters of 141 Italian IPOs from 2000 through to 2008. We find that underwriters support the share prices not only by short covering, but also by posting pure stabilisation bids. Pure short covering is mostly used by more reputable underwriters for IPOs with higher institutional participation and more secondary shares in the offer, whereas the opposite is true for pure stabilization IPOs. We try to identify some patterns in underwriters' aftermarket activities and analyse the extent to which the stabilisation activity, permitted for four weeks after trading begins, produces temporary or permanent effects on share prices.
