A new academic study challenges the belief that Wall Street systematically underprices IPOs, suggesting that first-day pops are driven by “superfan” investors, not mispricing. U.S. IPOs may be overestimated as underpriced by up to 40%, with extreme prices reflecting niche enthusiasm. The research proposes a new measure adjusting for price and trading volume, challenging estimates of $5B in annual IPO “money left on the table.” While the study acknowledges underpricing, it reframes the IPO puzzle as a measurement issue, prompting a reassessment of IPO pricing strategies and market debates on fairness.

The study contrasts with prior research estimating billions in annual losses from underpricing, suggesting companies deliberately underprice for strategic reasons. It offers a nuanced view of new listings, highlighting how early trades may distort market dynamics. While not denying underpricing, the study calls for a deeper examination of supply-demand mechanics in IPO pricing to avoid mistaking thin-volume pops for broad-based support.

Read more at Quiver Quantitative: IPO Pops Overstated? New Study Says Enthusiasts Skew Underpricing Data