SEPTEMBER 1975 "HOT ISSUE" MARKETS ROGER G. IBBOTSON AND JEFFREY F. JAFFE* I. INTRODUCTION THE NOTION OF a "hot issue" has been widely discussed and examined in the financial community during the past decade. Hot issues usually refer to particular stock issues that have risen from their offering prices to higher than average premia in the aftermarket. 1 The most well-known investigations of these issues were the Securities and Exchange Commission (SEC) Report on the Special Study of Security Markets (28) and the SEC "hot issue" hearings of 1972. This paper focuses on the prediction of "hot issue" markets. These markets are defined as periods in which the average first month performance (or aftermarket performance) of new issues is abnormally high. Although no other academic research has examined hot issue markets, the predictability of these periods is commonly asserted in the financial community." Furthermore, the SEC has focused on the years 1959-61 and 1968-69 as periods in which an extraordinary number of "hot issues" were allegedly offered. This paper first tests the dependency of new issue premia (and aftermarket performance) in a given month on the premia (and aftermarket performance) of other new issues in past months. Then
The Journal of Finance – Wiley
Published: Sep 1, 1975
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