levels of idiosyncratic volatility may justify the observed Nasdaq valuations. In the
model, uncertainty about future profitability is linked to return volatility and uncer-
tainty may hence explain both, high stock valuations as well as high return volatility.
As initial public offerings of stocks are the foremost important channel of new cap-
ital flow to young companies, the question arises why such cyclic behavior in the IPO
markets occurs. IPOs play a highly important role in initial equity financing. Thus it
is fascinating to see the market environment change so dramatically during relatively
short periods of time. The effect of such regime changes ...
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