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Stock Prices and IPO Waves

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  • Lubos Pastor
  • Pietro Veronesi

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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Bibliographic Info

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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Cited by:
  1. Sondermann, David & Bohl, Martin T. & Siklos, Pierre L., 2009. "The euro area stock market channel: Does one size fit all?," Finance Research Letters, Elsevier, vol. 6(4), pages 230-235, December.
  2. Johann Burgstaller, 2009. "When and why do Austrian companies issue shares?," Empirica, Springer, vol. 36(3), pages 229-244, August.
  3. Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.

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