I held my breath until the very last paragraph where you mention that preferential IPO share allocation is something fund management firms police very tightly internally.
A broader issue for another study I really wish someone would perform is whether IPO participation is even an advantage over the longer haul.
Investment banks have always implicitly sent the following message to institutional clients: The more you churn your portfolios, and the more trading commissions you generate, and the more of those commissions you disproportinately direct to us, the higher your allocation of the next hot IPO we manage will be; you'll promise to be long-term holders, but then you'll inevitably flip some or not all of it on the pop, and boost your outperformance relative to benchmark and competitors; wash, rinse, and repeat. The don't call it "the sell side" for nothing!
However, my gut feeling is that, on average, IPO stocks tend to underperform the market in the three to five years following their debut, suggesting that funds relying heavily on IPO allocations may see short-term boosts but struggle to sustain outperformance. Success stories of companies like Amazon and Google create a perception that IPOs are great investments, but many IPOs (especially outside of tech) have struggled or even collapsed (WeWork, Blue Apron). The Renaissance IPO ETF has trailed the S&P 500 in multiple periods, illustrating the challenge of making IPO investing a consistently winning strategy https://www.google.com/finance/quote/IPO:NYSEARCA?window=MAX .
Oh, there is plenty of work that shows that IPOs significantly underperform the stock market in the years after IPO. The guru on that subject is JayRitter who has an extensive database that he updates every year: https://site.warrington.ufl.edu/ritter/ipo-data/
I held my breath until the very last paragraph where you mention that preferential IPO share allocation is something fund management firms police very tightly internally.
A broader issue for another study I really wish someone would perform is whether IPO participation is even an advantage over the longer haul.
Investment banks have always implicitly sent the following message to institutional clients: The more you churn your portfolios, and the more trading commissions you generate, and the more of those commissions you disproportinately direct to us, the higher your allocation of the next hot IPO we manage will be; you'll promise to be long-term holders, but then you'll inevitably flip some or not all of it on the pop, and boost your outperformance relative to benchmark and competitors; wash, rinse, and repeat. The don't call it "the sell side" for nothing!
However, my gut feeling is that, on average, IPO stocks tend to underperform the market in the three to five years following their debut, suggesting that funds relying heavily on IPO allocations may see short-term boosts but struggle to sustain outperformance. Success stories of companies like Amazon and Google create a perception that IPOs are great investments, but many IPOs (especially outside of tech) have struggled or even collapsed (WeWork, Blue Apron). The Renaissance IPO ETF has trailed the S&P 500 in multiple periods, illustrating the challenge of making IPO investing a consistently winning strategy https://www.google.com/finance/quote/IPO:NYSEARCA?window=MAX .
Oh, there is plenty of work that shows that IPOs significantly underperform the stock market in the years after IPO. The guru on that subject is JayRitter who has an extensive database that he updates every year: https://site.warrington.ufl.edu/ritter/ipo-data/