IPO Activity and Market Volatility

We hypothesize two channels in which market volatility affects initial public offering (IPO) activity. First, CEOs time the market for IPOs and volatility makes this decision process harder. Second, risk-averse IPO investors become more reluctant towards IPOs during periods of higher volatility for their after-IPO returns. We provide evidence that higher market volatility leads to lower IPO activity, supporting these hypotheses. More importantly, we show that it is not the realized volatility, but rather the implied (expected) volatility, that leads to lower IPO activity. While there may be many companies who are ready to have IPOs, they may be simply waiting for a more opportune time which may not necessarily be a period of high prices but of low volatility