IPOs – Not So Much Money Left on the Table. The Cost Compensation Hypothesis

One of the most extensively documented anomalies concerning initial public offerings is IPO underpricing. Although the phenomenon is well analyzed and explained, most of the researches ignore the individual investor's costs, constraints and perspective. We suppose that after accounting for these issues, there may be not much money left on the table.The paper consists of three main parts. First, we characterize the IPO underpricing anomaly and review performance patterns from many countries with their theoretical explanations. In the second section, we indicate the usually ignored issues, which may potentially significantly impede the IPO investments. The last part is an empirical analysis based on 209 offerings in Polish stock market between 2001 and 2010. The paper comes to conclusion that the high IPO returns result from just a few outliers and are not significantly higher then benchmark returns. As we hypothesized, the IPO underpricing seems to be just a compensation for costs and time constraints faced by investors