Graduation Year

2019

Date of Submission

12-2018

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Professor Eric Hughson

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Terms of Use for work posted in Scholarship@Claremont.

OCLC Record Number

1091900494

Abstract

In this paper, I explore whether the expected economic condition plays a role in determining the degree of IPO underpricing. My hypothesis is that given the current condition, the IPO underpricing is higher when the expected economic condition is worse. I test the hypothesis on the aggregate level and the industry level. I find no evidence that supports my hypothesis on both levels. On the aggregate level, I find the “hot” market, a period when the underpricing is significantly higher than other periods, exists when both the current and expected economic conditions are good. On the industry level, I find that the underpricing pattern of technology industry IPOs prior to the dot-com crash is consistent with my hypothesis. It seems that insiders see signs of imminent bubble burst and they rush to take companies public by accepting higher underpricing.

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