Investor Sentiment and Capital Allocation

Interest rates also have an effect on investor behaviour. At high interest rates, the preference for bonds over equities is often prevalent, due to the fact that they represent fixed-income investments. When investors will seek alternative investments providing such higher returns, but lower risk, their demand for equity and other more risky assets might decrease. This would accordingly reduce the liquidity levels of equity markets linked to IPOs or secondary offerings, thereby reducing deal-making activities.