Supply Matters for Asset Prices: Evidence from Ipos in Emerging Markets
38 Pages Posted: 8 Mar 2006 Last revised: 25 Feb 2008
Date Written: December 2005
We show that the introduction of a new asset affects the prices of previously existing assets in a market. Using data from 254 IPOs in emerging markets, we find that stocks in industries that covary highly with the industry of the IPO experience a larger decline in prices relative to other stocks during the month of the IPO. The effects are stronger when the IPO is issued in a market that is less integrated internationally, and when the IPO is big. The evidence supports the idea that the composition of asset supply affects the cross-section of stock prices.
JEL Classification: G11, G14, G15
Suggested Citation: Suggested Citation