Initial Public Offering Effects on Volatility in US Stock Market

Abdirahman Nor Omar Ahmed, Ayben Koy


This paper aims to investigate the effect of Initial Public Offerings (IPOs) on stock market volatility in the United States using the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. The study utilizes daily data from January 2020 to October 2022 on the Standard & Poor's 500 Index (S&P 500) and IPO firms listed on the New York Stock Exchange (NYSE) their IPO dates during the same period. The GARCH model is employed to estimate the volatility of the S&P 500 index stock prices after the IPOs announcements during the first day, first five days, and first ten days. The study finds that IPOs significantly impact volatility in the US market, and the effect is more pronounced in the short term. We discovered that IPOs after their announcements during the first five days have a negative impact on other stock prices in the S&P500 index. The effects are stronger for the first day of initial public offering come to the market while there is a negative impact on the 10th day of IPOs in the market but it is not statistically significant. The downward-sloping demand curve hypothesis is supported by these findings. These results have important implications for investors, market regulators, and policymakers. Investors should be aware of the potential for increased volatility during periods of IPO activity and adjust their investment strategies accordingly. Market regulators may need to consider implementing measures to mitigate the impact of IPOs on market volatility. Policymakers may also need to consider the potential economic effects of IPOs and the associated increase in market volatility to ensure a stable and efficient stock market.


IPOs, US, S&P500, NYSE, Volatility, ARCH/GARCH, E-GARCH

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Journal of International Trade, Logistics and Law is licensed under a Attribution-NonCommercial 4.0 International (CC BY-NC 4.0).

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