Post by sapuco on Feb 4, 2010 7:02:23 GMT 4
Market Volatility and the Timing of IPO Filings
Walid Y. Busaba
University of Western Ontario - Ivey School of Business
Daisy Li
University of Western Ontario - Richard Ivey School of Business
Guorong Yang
University of Western Ontario - Richard Ivey School of Business
November 1, 2009
Abstract:
We investigate how aggregate IPO filing volume responds to changes in stock market volatility. The filing volume consists of all non-financial firms that filed with the SEC between 1984 and 2004. Controlling for factors shown in the literature to impact primary market activity, notably stock market returns, we find filing volume positively related to changes in market volatility, and the relation is especially pronounced when stock market return is at ‘normal’ levels, i.e. neither too high nor too low. The relation also holds at the industry level, in a pooled time-series cross-industry regression context. The relation is more pronounced for IPO filings in ‘new’ industries (computers, software, electronic equipment, and telecommunications) relative to traditional industries. These results are consistent with our hypothesis that the ability to discover investor valuations before deciding to sell shares gives firms filing with the SEC an ‘option’ on the uncertain offer price. This option has value not only in a strong stock market but also in a volatile market. Furthermore, option theory implies that the marginal effect of volatility on this option is highest in ‘normal’ stock markets.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1539265_code31767.pdf?abstractid=1539226&mirid=2
Walid Y. Busaba
University of Western Ontario - Ivey School of Business
Daisy Li
University of Western Ontario - Richard Ivey School of Business
Guorong Yang
University of Western Ontario - Richard Ivey School of Business
November 1, 2009
Abstract:
We investigate how aggregate IPO filing volume responds to changes in stock market volatility. The filing volume consists of all non-financial firms that filed with the SEC between 1984 and 2004. Controlling for factors shown in the literature to impact primary market activity, notably stock market returns, we find filing volume positively related to changes in market volatility, and the relation is especially pronounced when stock market return is at ‘normal’ levels, i.e. neither too high nor too low. The relation also holds at the industry level, in a pooled time-series cross-industry regression context. The relation is more pronounced for IPO filings in ‘new’ industries (computers, software, electronic equipment, and telecommunications) relative to traditional industries. These results are consistent with our hypothesis that the ability to discover investor valuations before deciding to sell shares gives firms filing with the SEC an ‘option’ on the uncertain offer price. This option has value not only in a strong stock market but also in a volatile market. Furthermore, option theory implies that the marginal effect of volatility on this option is highest in ‘normal’ stock markets.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1539265_code31767.pdf?abstractid=1539226&mirid=2