The Variability Of IPO Initial Returns

Topics:
IPO
Tags:
Finance,
Financial Planning,
Financial Services,
Investment,
IPO,
Volatility
Source:
University of Southern California

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Overview: The monthly volatility of IPO (Initial Public Offering) initial returns is substantial and fluctuates dramatically over time. Moreover, the monthly volatility of initial returns is significantly positively correlated with monthly mean initial returns. This contrasts strongly with the strong negative correlation between the mean and volatility of secondary-market returns. Consistent with IPO theory, our empirical findings suggest that information asymmetry about the firm's market value drives this positive correlation. Specifically, months in which a greater portion of the offerings are for companies for which information asymmetry is likely to be a problem tend to have higher average initial returns and a higher volatility of initial returns.

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Format: PDF | Size: 236KB | Date: May 2006 | Pages: 38

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