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Saturday, April 30, 2005

Weaker IPOs May Be Good for Stocks

This recent Wall Street Journal Weaker IPOs May Be Good for Stocks: (note: online subscription required) highlights an interesting pattern - that overall stock market returns are weaker in the time period following hot IPO markets and stronger following weak IPO markets.

This makes sense if you believe in an "overvaluation" story - IPOs are more attractive when valuations are high. So, if markets are getting overheated, subsequent returns are likely to be low. I'd suspect that there's a similar pattern for seasoned equity issues (SEOs), which might even be stronger - it's much easier to time an SEO than an IPO.

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