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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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.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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