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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.

Suggested Citation

  • Lubos Pastor & Pietro Veronesi, 2003. "Stock Prices and IPO Waves," NBER Working Papers 9858, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9858
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    Cited by:

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    2. Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.
    3. Ahmad Fraz & Arshad Hassan, 2017. "Stock Price Synchronicity and Information Environment," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(4), pages 213-232, December.
    4. 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.
    5. Ravi Kiran, 2011. "Price Performance of IPOS in Indian Stock Market," EuroEconomica, Danubius University of Galati, issue 30, pages 73-97, November.

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    JEL classification:

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

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