[ct4ul4u]

The term "pop" is sometimes used to describe the immediate post-IPO jump.

A small amount of "Pop" (no more than 10 percent) isn't a bad thing. It is a result of oversubscription, which every underwriter needs in order to assure they aren't left holding the bag. It also makes stabilization (the only legal form of market manipulation) less expensive for the underwriter.

You're going to see more extreme cases of "pop" in a market with a lot of uncertainty (like we have now). This is the underwriter being cautious. Their worst case scenario doesn't appear and the IPO turns out to be underpriced.

What we saw in the late 1990's was heinous. I worked at a startup investment bank (Epoch Partners) that was intended to take some of the pop out of IPOs (and make allocation more available to genuine retail investors).

-r

[eru]

Yes, but why care about underpricing at all? Can't you just have a formal auction, where everybody states (legally binding) how many stocks they want at which price level (e.g. for 3$ I'd buy 10 stocks, for 5$ I'd buy only 8 stock, and so on, basically giving your demand function) and then do a simple optimization that finds the highest price at which all shares sell. (Or alternatively, and perhaps better, the lowest price at which everybody who wants to pay at least this price, can buy.)

Why rely on guess work?

Edit: I saw on the linked Wikipedia article that some people have tried auctions. Google seemed a noteworthy example.

[ct4ul4u]

Epoch had an auction equivalent process (which we didn't get to implement because we didn't get to the point of being lead underwriter).