Period of Digestion

Period of Digestion - When new stocks or bonds are introduced to the market, they often go through a period of raising and dropping share prices as investors try to determine a reasonable price. The first few public offerings will eventually stabilize the trading price. This volatility is considered a necessary part of the time period required to even out the prices for newly registered and issued securities such as primary shares or other new offerings. This volatile period is referred to as the period of digestion, implying that the market, and specifically investors, needs time to ?digest? the value of a new stock or bond offering.