SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

the average short sale loses almost 4% in the first three months of trading. Therefore, short
sellers are unlikely to significantly mitigate the magnitude of the underpricing.
Our results may have implications for the argument that the loosening of short sale
constraints due to the expiration of lock-ups lead to an increase in the supply of shares resulting
in the collapse of internet stocks. (e.g., Ofek and Richardson (2003)). Even though the period
studied here does not include the tech bubble because of data availability, our findings on rebate
rates are surprisingly similar to those documented by Geczy, Musto, and Reed (2002) during the
bubble period. Thus, our findings complement Schultz (2008) regarding the impact of lock-up
expirations on short sale constraints during the tech bubble as we document that short selling is
prevalent early in IPO aftermarkets long before such lock-ups expire.
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SEC_OEA_FCIC_002484