IPO Market Cycles: Bubbles or Sequential Learning?


  • Michelle Lowry,

  • G. William Schwert

    Search for more papers by this author
    • Lowry is affiliated with Penn State University, and Schwert is affiliated with the University of Rochester and the National Bureau of Economic Research. An earlier version of this paper was titled “IPO Market Cycles: An Exploratory Investigation.” The Bradley Policy Research Center at the William E. Simon Graduate School of Business Administration of the University of Rochester provided support for this research. We are indebted to Jay Ritter for the use of his data. We received helpful suggestions from Harry DeAngelo; Craig Dunbar; Gregg Jarrell; Alexander Ljungqvist; Tim Loughran; Vojislav Maksimovic; Harold Mulherin; Jay Ritter; Jerold Warner; Ivo Welch; Jerold Zimmerman; and seminar participants at the University of Rochester, MIT, and the Australasian consortium of universities video conference. We especially appreciate many helpful comments from Richard Green (the editor) and from an anonymous referee. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.


Both IPO volume and average initial returns are highly autocorrelated. Further, more companies tend to go public following periods of high initial returns. However, we find that the level of average initial returns at the time of filing contains no information about that company's eventual underpricing. Both the cycles in initial returns and the lead-lag relation between initial returns and IPO volume are predominantly driven by information learned during the registration period. More positive information results in higher initial returns and more companies filing IPOs soon thereafter.