The efficient market hypothesis and corporate event waves: part II

This article is the second of a two-part series on the efficient market hypothesis corporate event waves. The ideas of market efficiency, or rational theory, and the behavioral hypothesis have been extensively used to explain the modern phenomena of corporate event waves. Some studies investigate the patterns of corporate events from a behavioral finance perspective and suggest that corporate announcement waves are driven by investor sentiment. Baker and Wurgler examine equity market timing as an aspect of real corporate financial policy. Sentiment can also explain IPO waves. Post-announcement returns and IPO volume are positively correlated to firms' capital demands and the level of investor optimism. Helwge and Liang examine the IPO cycles from hot to cold markets from 1975 to 2000. Corporate e vent wave scan also be explained by the neoclassical efficiency hypothesis, proposing that business cycle fluctuations and economic conditions drive firms' decisions on financing transactions.