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Initial Public Offerings in Hot and Cold Markets

Posted: 6 Oct 2004  

Jean Helwege

UC Riverside

Nellie Liang

Federal Reserve Board


The literature offers many explanations for why the IPO market cycles from hot to cold. These include theories in which hot markets represent clusters of IPOs in a new industry, and signaling models that predict that hot markets draw in better quality firms. Others suggest hot market IPOs' stock returns reflect their poor quality. We compare IPOs over cycles during 1975-2000 and find that hot and cold IPO markets do not differ so much in the characteristics of the firms that go public as in the quantity of firms that go public. Both hot and cold IPOs are largely concentrated in the same narrow set of industries and they have few distinctions in profits, age, or growth potential. Our results suggest that hot markets are not driven primarily by changes in adverse selection costs, managerial opportunism, or technological innovations, but more likely reflect greater investor optimism.

JEL Classification: G32

Suggested Citation

Helwege, Jean and Liang, Nellie, Initial Public Offerings in Hot and Cold Markets. Journal of Financial and Quantitative Analysis, Vol. 39, p. 541, September 2004. Available at SSRN:

Jean Helwege

UC Riverside ( email )

900 University Ave
Riverside, CA 92521
United States

Nellie Liang (Contact Author)

Federal Reserve Board ( email )

Capital Markets Section
20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2918 (Phone)
202-452-3819 (Fax)

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