Financial Market Volatility and Primary Placements

Table 1: 3SLS estimates of eqs.(1) and (2).

^δst = ^α0 + ^αιΛB t ^{+ α}2 RS, t ^{+ α}3^σ S, t ^{+ α}4A^yt ⁺ ∑ ⁴=1 ^α i.∣^λ St-i ^{+ ε} S, t

Notes: empirical estimates worked out for the period 1973:03-2006:06. T-Statistics in parenthesis. ↑ Ljung-Box
Q-Statistics of standardized errors at lags 8 and 16. J Breusch-Godfrey tests for serial correlation up to lag 8.
b White tests for heteroscedasticity. P-values in parenthesis.

creases of public firms. While the literature suggests that decreasing stock returns
have a negative impact on IPOs, firms, in the aggregate, issue large amounts of
new shares and convertible bonds to raise capital when their finances are strained.
Thus, our results might suggest that following strong negative shocks, associated
with peaks in volatility, the amount of equity raised by means of capital increases
or convertible bonds raises, thus at least partially offsetting the reduced volumes
of IPOs. Moreover, peaks in volatility might have a retarded impact on primary
placements of shares. We investigate this hypothesis by supplementing eq.(1)
with lagged values of volatility and testing for their significance. Empirical re-
sults, however, show no evidence of lagged responses.¹¹ The empirical estimates
show similar results for the issuance of corporate bonds. They are mainly driven
by returns on LBCB, while the volatility of bond markets is not statistically sig-
¹¹To save space these results are not reported.

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