In Times of Turbulence: How Market Volatility Shapes the Pricing of Initial Public Offerings

Sammanfattning

Examining initial public offerings (IPOs) in the U.S. between 2000 and 2024, this paper provides evidence that both realized and implied market volatility during the 21 trading days prior to the IPO positively affect underpricing and its dispersion across firms. Extending the analysis to market volatility in additional time windows, the results indicate that implied volatility has a positive impact on price revision, seemingly by affecting the initial price range. Although definitive conclusions cannot be drawn, the results suggest that market volatility makes IPO pricing more difficult, prompting conservative pricing to ensure successful listings. The findings also suggest firms weigh historical and forward-looking uncertainty differently across the IPO pricing process. Together, this paper provides perspectives on how market uncertainty shapes IPO pricing decisions.