The increased of price volatility due to positive initial returns will
reduce investor confidence and impact on the overall market. Market
stabilization mechanism is needed to control the price volatility. This
research is intended to explore the effectiveness of Green-Shoe Option
in reducing stock price volatility after IPO. This study is done through
GARCH model development intended to identify the volatility of IPO
shares price. This research compares the volatility price of company
shares that apply Green shoe option at IPO with companies that do not
apply it. The result of this research on companies that conduct IPO on
2000-2013 periods showed that the green shoe option stabilization
program which was used by the issuers was effective in muffing the stock
prices’ volatility. Therefore, according to researchers Green Shoe
Option stabilization program can be used to prevent or ease the drop of
shares price under Public offering.