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date: 17 January 2019

Abstract and Keywords

This chapter examines the determinants of IPO volume in four broad categories: (i) demand side, i.e. contemporaneous investment opportunities; (ii) supply side, reflecting time-varying entrepreneurial diversification incentives; (iii) time-varying overall mispricing; and (iv) strategic pooling of low quality issuers with high-quality issuers. Our evidence is inconsistent with the second and third channels. Time-varying risk does not appear to drive the entrepreneurial decision to go public. While IPOs offer low average returns, there is little evidence that they are mispriced relative to similar public firms, either in the full sample or in hot markets. Instead, IPOs tend to cluster when actors in the economy more broadly are behaving as if investment opportunities are robust.

Keywords: IPO, trading volume, mispricing, diversification, entrepreneurship, clustering

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