Initial Public Offerings Across Business Cycles

Abstract

A vast literature exists pertaining to the prediction of stock performance, though a consistent pattern has yet to be found. The efficient market hypothesis provides one possible explanation. IPOs are different, however, as they are more regulated than typical stocks. This means there is a potential the IPO market may contain inefficiencies. My work combines ideas from earlier research on the effects that business cycles and IPO cycles have on IPO success. This study aims to predict short-term IPO success, measured both from an investor's and a firm's point of view. My results suggest IPO returns are predictable to some extent up to 90 days following an issue. Though the results are encouraging, making investment decisions on this knowledge is currently impractical because both the business cycle and the IPO cycle cannot be acknowledged in realtime.