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Stock Prices and IPO Waves

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Author Info
Lubos Pastor
Pietro Veronesi

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Abstract

We develop a model of stock valuation and optimal IPO timing when investment opportunities are time-varying. IPO waves in our model are caused by declines in expected returns, increases in expected profitability, or increases in prior uncertainty about average profitability. The model predicts that IPO waves are preceded by high market returns, followed by low market returns, and accompanied by high stock prices. These as well as other predictions are supported empirically. Stock prices at the peak of the recent bubble', which was associated with an IPO wave, are consistent with plausible parameter values in our rational valuation model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9858.

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Date of creation: Jul 2003
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Handle: RePEc:nbr:nberwo:9858

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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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Cited by:
(explanations, 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. Johann Burgstaller, 2005. "When and why do Austrian companies issue shares?," Economics working papers 2005-03, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  2. Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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