Why do many IPOs tend to have dramatic opening gains?
Back in ye days of olde (at least a couple of years ago), IPOs were merely a way to secure financing for a company, and triple-digit-percentage gains were almost unheard of. Now an IPO is becoming a marketing event where a huge gain is almost expected. The incentive to underprice an IPO is triggered by the company’s desire for headlines and from the underwriter’s desire to ensure profits for its clients. Also, only a small portion of a company’s shares are initially offered to the public, so many investors are chasing after few shares, often driving prices skyward.
