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IPO Market Cycles: Bubbles or Sequential Learning?

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Author Info
Michelle Lowry (Penn State University,)
G. William Schwert (University of Rochester and the National Bureau of Economic Research)

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Abstract

Both IPO volume and average initial returns are highly autocorrelated. Further, more companies tend to go public following periods of high initial returns. However, we find that the level of average initial returns at the time of filing contains no information about that company's eventual underpricing. Both the cycles in initial returns and the lead-lag relation between initial returns and IPO volume are predominantly driven by information learned during the registration period. More positive information results in higher initial returns and more companies filing IPOs soon thereafter. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 3 (06)
Pages: 1171-1200
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:3:p:1171-1200

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jean Helwege & Nellie Liang, 1996. "Initial public offerings in hot and cold markets," Finance and Economics Discussion Series 96-34, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June. [Downloadable!] (restricted)
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  4. Tim Loughran & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 413-444, March.
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  6. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March. [Downloadable!] (restricted)
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  7. Stoughton, Neal M & Wong, Kit Pong & Zechner, Josef, 2001. "IPOs and Product Quality," Journal of Business, University of Chicago Press, vol. 74(3), pages 375-408, July. [Downloadable!] (restricted)
  8. Bayless, Mark & Chaplinsky, Susan, 1996. " Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, vol. 51(1), pages 253-78, March. [Downloadable!] (restricted)
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  15. Pagano, Marco & Panetta, Fabio & Zingales, Luigi, 1996. "Why Do Companies Go Public? An Empirical Analysis," CEPR Discussion Papers 1332, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  16. Dunbar, Craig G., 1998. "The Choice between Firm-Commitment and Best-Efforts Offering Methods in IPOs: The Effect of Unsuccessful Offers," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 60-90, January. [Downloadable!] (restricted)
  17. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August. [Downloadable!] (restricted)
  18. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  19. Randolph P. Beatty & Jay R. Ritter, . "Investment Banking, Reputation and the Underpricing of Initial Public Offerings," Rodney L. White Center for Financial Research Working Papers 2-85, Wharton School Rodney L. White Center for Financial Research.
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  20. Roger G. Ibbotson & Jody L. Sindelar & Jay R Ritter, 1994. "The Market'S Problems With The Pricing Of Initial Public Offerings," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(1), pages 66-74. [Downloadable!] (restricted)
  21. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361. [Downloadable!] (restricted)
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