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Stock Prices and IPO Waves

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  • Pástor, Luboš
  • Veronesi, Pietro

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.

Suggested Citation

  • Pástor, Luboš & Veronesi, Pietro, 2003. "Stock Prices and IPO Waves," CEPR Discussion Papers 4002, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4002
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    Cited by:

    1. Johann Burgstaller, 2009. "When and why do Austrian companies issue shares?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(3), pages 229-244, August.
    2. 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.
    3. Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.
    4. repec:bec:imsber:v:9:y:2017:i:4:p:213-232 is not listed on IDEAS
    5. Ravi Kiran, 2011. "Price Performance of IPOS in Indian Stock Market," EuroEconomica, Danubius University of Galati, issue 30, pages 73-97, November.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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