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Do IPOs Affect the Prices of Other Stocks? Evidence from Emerging Markets

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  • Matías Braun
  • Borja Larrain

Abstract

We show that the introduction of a large asset permanently affects the prices of existing assets in a market. Using data from 254 initial public offerings (IPOs) in 22 emerging markets, we find that portfolios that covary highly with the IPO experience a decline in prices relative to other portfolios during the month of the issue. The effects are stronger when the IPO is issued in a market that is less integrated internationally and when the IPO is bigger. This evidence is consistent with the idea that shocks to asset supply have a significant effect on asset prices. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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  • Matías Braun & Borja Larrain, 2009. "Do IPOs Affect the Prices of Other Stocks? Evidence from Emerging Markets," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1505-1544, April.
  • Handle: RePEc:oup:rfinst:v:22:y:2009:i:4:p:1505-1544
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    Cited by:

    1. Hong, Harrison & Kubik, Jeffrey D. & Stein, Jeremy C., 2008. "The only game in town: Stock-price consequences of local bias," Journal of Financial Economics, Elsevier, vol. 90(1), pages 20-37, October.
    2. Astudillo, Alfonso & Braun, Matías & Castañeda, Pablo, 2011. "The going public decision and the structure of equity markets," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1451-1470.
    3. McGilvery, Andrew & Faff, Robert & Pathan, Shams, 2012. "Competitive valuation effects of Australian IPOs," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 74-83.
    4. Campbell, Cynthia J. & Cowan, Arnold R. & Salotti, Valentina, 2010. "Multi-country event-study methods," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3078-3090, December.
    5. Braun, Matías, 2014. "The structure of equity markets across countries: Scarcity and stock valuations," Finance Research Letters, Elsevier, vol. 11(4), pages 385-397.
    6. Zhang, Yue, 2015. "The securitization of gold and its potential impact on gold stocks," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 309-326.
    7. Ayyagari, Meghana & Doidge, Craig, 2010. "Does cross-listing facilitate changes in corporate ownership and control?," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 208-223, January.
    8. Kutsuna, Kenji & Smith, Janet Kiholm & Smith, Richard & Yamada, Kazuo, 2016. "Supply-chain spillover effects of IPOs," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 150-168.
    9. Packer, Frank & Spiegel, Mark M., 2016. "China's IPO activity and equity market volatility," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    10. Baschieri, Giulia & Carosi, Andrea & Mengoli, Stefano, 2015. "Local IPOs, local delistings, and the firm location premium," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 67-83.
    11. Maquieira, Carlos P. & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2012. "Theory and practice of corporate finance: Evidence and distinctive features in Latin America," Emerging Markets Review, Elsevier, vol. 13(2), pages 118-148.
    12. Fang, Junxiong & Shi, Haina & Xu, Haoping, 2012. "The determinants and consequences of IPOs in a regulated economy: Evidence from China," Journal of Multinational Financial Management, Elsevier, pages 131-150.

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