Cycles in the IPO market

Yung, Chris, Colak, Gönül and Wang, Wei (2008) Cycles in the IPO market. Journal of Financial Economics, 89 (1). pp. 192-208. ISSN 0304-405X

[img] PDF - Accepted Version
Available under License Creative Commons Attribution-NonCommercial No Derivatives.

Download (1MB)

Abstract

We develop a model in which time-varying real investment opportunities lead to time-varying adverse selection in the market for IPOs. The model is consistent with several stylized facts known about the IPO market: economic expansions are associated with a dramatic increase in the number of firms going public, which is in turn positively correlated with underpricing. Adverse selection is procyclical in the sense that dispersion in unobservable quality across firms should be more pronounced during booms. Taking the premise that uncertainty is resolved (and thus private information revealed) over time, we test this hypothesis by looking at long-run abnormal returns and delisting rates. Consistent with the model, we find (a) greater cross-sectional return variance, and (b) higher incidence of delisting for hot-market IPOs.

Item Type: Article
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 22 Feb 2022 10:05
Last Modified: 22 Feb 2022 10:15
URI: http://sro.sussex.ac.uk/id/eprint/104495

View download statistics for this item

📧 Request an update