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Non-market interaction in primary equity markets: evidence from France and Germany

This paper provides micro-econometric evidence on the relevance of non-market interaction for the timing of initial public offerings (IPOs) in the French and German primary equity markets. The surge of IPO volume in the late 1990s appears to be consistent with rational expectations, not with adaptive expectations derived from the performance of past IPOs. This finding tends to support the hypothesis that hot issue markets are endogenous and that they may generate large welfare gains by boosting the incentives for technological innovation in start-up firms, potentially creating a self-fulfilling prophecy. A variety of empirical approaches and policy implications are discussed.