Additionally lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
In theory, ratings agencies and mathematical models help investors price the risk they are taking on, even if the securities they are buying are scarcely traded.
Initial public offerings and other securities activities have a radically different risk profile than sophisticated buyers and sellers setting the price on a private company in a fully-negotiated transaction.
That risk is all the more prevalent because the Securities and Exchange Commission this month allowed companies to disseminate price-sensitive information on social networks.