Edited by Mario Levis and Silvio Vismara
Chapter 4: IPO waves and hot markets in the UK
A stream of literature tries to explain the cyclical nature of the initial public offering (IPO) market, which is well documented using US data. Some papers argue that IPO waves emerge as a result of improving market conditions (Pástor and Veronesi, 2005), whereas others favor a market timing explanation such that hot IPO markets (that is, the peaks of IPO waves) coincide with windows of opportunity when the cost of equity is temporarily low (Alti, 2006). There are also a few stylized facts documented about US IPO cycles. Lowry and Schwert (2002) show that periods of high initial returns lead to periods of high volume in the IPO market. Pástor and Veronesi (2005) find that IPO volume responds to changes in market conditions. Alti (2006) provides evidence that hot market IPOs issue substantially more equity. Helwege and Liang (2004, p. 543) find that hot and cold market IPOs are driven from similar industries, such that ‘IPOs in hot (high volume) markets are not more concentrated in particular industries than IPOs in cold markets’.
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