Hot and Cold Market Cycle and IPO Performance: Theory and Evidence

Presented at 11th PACAP/FMA Conference, Singapore, July 1999

33 Pages Posted: 4 Oct 2001

See all articles by Kangmao Wang

Kangmao Wang

Zhejiang University - School of Business Administration

Abstract

The study develops a theoretical model, which describes the mechanism and causation of hot and cold market and their relationship to IPO underpricing. Empirical tests are conducted on a sample of 1,382 IPOs issued in the United States from 1st January 1988 to 30th June 1999. The empirical tests examine the propositions derived from the model, namely underpricing behavior and role of risk premium factor as well as risk-free interest rates in the hot and cold markets. The study demonstrates that interest rates and bond rating spread are highly correlated to the hot/cold markets thus can be used as a proxy of hot/cold market cycle. The study concludes that both interest rate and percentage of underpriced issues in the cold market are significantly higher than that in the hot market. It is also concluded that underpricing is higher in the hot market than in the cold market.

Suggested Citation

Wang, Kangmao, Hot and Cold Market Cycle and IPO Performance: Theory and Evidence. Presented at 11th PACAP/FMA Conference, Singapore, July 1999, Available at SSRN: https://ssrn.com/abstract=286181 or http://dx.doi.org/10.2139/ssrn.286181

Kangmao Wang (Contact Author)

Zhejiang University - School of Business Administration ( email )

20 Yugu Road
Hangzhou 310027
China
86-571-8796-8455 (Phone)
86-571-8796-8455 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,031
Abstract Views
4,415
rank
27,172
PlumX Metrics