Market Volatility and IPO Filing Activity

Abstract

The IPO filing volume is positively related to changes in market volatility, especially when market returns are at ‘normal’ levels. This is consistent with the view that filing with the SEC gives would-be issuers an ‘option’ on market valuations. Creating this option is attractive not only when market valuations rise but also when volatility increases, and the effect of volatility is more pronounced when market returns are neither high nor low. We therefore identify a distinct type of ‘window of opportunity’ for firms attempting to go public, characterized not particularly by strong stock valuations but by increased volatility in valuations.

Keywords: Initial public offerings, Bookbuilding, Price discovery, Option to withdraw, Option to go public, Market volatility, Market timing

JEL Classification: G2, G3, K2