A market where the number of initial public offerings (IPOs) that were introduced in a given month is large, after adjusting for a time trend to account for growth in the broader economy. A hot IPO market is one characterized by the presence of optimistic investors and great interest from the market circles including the media.
The higher demand sends prices in the secondary market to substantially high levels, which are not sustainable over a stretched period. Hot initial public offerings (hot IPOs), by nature, produce high initial returns. Therefore, hot IPOs are characterized by big interest in IPO shares (oversubscription). More specifically, such IPOs produce high positive returns (e.g., 10%).
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