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RFS Advance Access originally published online on May 25, 2005
Review of Financial Studies 2005 18(3):1105-1138; doi:10.1093/rfs/hhi022
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© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org

IPO Market Timing

Aydogan Alti
University of Texas at Austin

Address correspondence to Aydogan Alti, Department of Finance, University of Texas at Austin, Austin, Texas 78712, or e-mail: aydogan.alti{at}mccombs.utexas.edu.

I develop a model of information spillovers in initial public offerings (IPOs). The outcomes of pioneers’ IPOs reflect participating investors’ private information on common valuation factors. This makes the pricing of subsequent issues relatively easier and attracts more firms to the IPO market. I show that IPO market timing by the followers emerges as an equilibrium clustering pattern. High offer price realizations for pioneers’ IPOs better reflect investors’ private information and trigger a larger number of subsequent IPOs than low offer price realizations do. This asymmetry in the spillover effect is more pronounced early on in a hot market. The model provides an explanation for recent empirical findings that illustrate the high sensitivity of going public decision to IPO market conditions.


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