Cycles in the IPO market

Chris Yung, Gonul Colak, Wei Wang

Research output: Contribution to journalArticleScientificpeer-review

114 Citations (Scopus)


We develop a model in which time-varying real investment opportunities lead to time-varying adverse selection in the market for IPOs. The model is consistent with several stylized facts known about the IPO market: economic expansions are associated with a dramatic increase in the number of firms going public, which is in turn positively correlated with underpricing. Adverse selection is procyclical in the sense that dispersion in unobservable quality across firms should be more pronounced during booms. Taking the premise that uncertainty is resolved (and thus private information revealed) over time, we test this hypothesis by looking at long-run abnormal returns and delisting rates. Consistent with the model, we find (a) greater cross-sectional return variance, and (b) higher incidence of delisting for hot-market IPOs.
Original languageEnglish
Peer-reviewed scientific journalJournal of Financial Economics
Issue number1
Pages (from-to)192-208
Number of pages17
Publication statusPublished - 01.07.2008
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Adverse selection
  • Cross-sectional return variance
  • Delisting rates
  • Initial public offerings
  • Underpricing


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