One Argument That Explains Why IPOs Are Underpriced, on Average

question 63

Essay

One argument that explains why IPOs are underpriced, on average, is that underwriters underprice issues to avoid being sued by angry customers. Why, then, shouldn't you indiscriminately buy shares of stock in every IPO that comes out?

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Definitions:

Traumatic Experience

An event that causes psychological trauma, potentially resulting in long-lasting emotional distress.

Psychological Tension

A state of mental or emotional strain resulting from demanding circumstances.

Posttraumatic Stress Disorder

A psychiatric disorder that occurs in people who have experienced or witnessed a traumatic event and exhibit symptoms such as flashbacks, nightmares, and severe anxiety.

Depressive Disorders

A group of conditions characterized by persistent feelings of sadness, hopelessness, and a lack of interest or pleasure in activities.