The Predictability of Future IPO Volume Through Initial Returns, a Study of the European Market

Abstract

IPO volume is highly autocorrelated in the European market, unlike initial returns. We find more companies tend to go public the following quarter after periods of high initial returns, as well as some characteristics with significant contribution towards explaining initial returns. However, the explanatory power of these characteristics are too low to yield sufficient predictions for the eventual underpricing of an IPO. We observe some differences in explanatory power of characteristics from the beginning to the end of an IPO’s registration period, which imply an increase in knowledge for the issuing firms and their underwriters, in the statistical sense, however this has little economical impact.