What Factors Affect IPO Performance?

Geri Terzo
Geri Terzo
Woman holding a book
Woman holding a book

On the first day that a stock begins trading in the public markets, the security may experience the best percentage gains that the issuing company ever sees. The markets and investors get excited about new money entering the stock market, and if prospects for an IPO are good, that makes for an even bigger splash on the first day. Despite that first-day bump, IPO performance is affected by several factors. Market conditions, profitability in other competing companies, and the investment community's perception of the new issue all influence trading performance in an IPO.

IPO performance can be measured in individual companies or in a series of companies that issue shares in the public markets for the first time during a season. If a string of IPOs are issued, and performance in those stocks is disappointing, it could lead another company waiting in the wings for its debut session to stall the offering. On the other hand, if investors are welcoming new issues and sentiment surrounding the stock market is positive, more privately held companies may decide to go public because IPO performance has been rewarding.

Media hype can affect IPO performance. Market psychology plays into investor behavior, and if financial commentators and authors are not confident about a new stock, the sentiment can very easily spill over to the markets. If the media anticipate an IPO with positive comments, demand in the new issue could surge, and this will affect IPO performance to the upside.

Sometimes, an overseas company will begin trading its shares on another country's stock market, a security known as an American Depositary Receipt in the U.S. When this occurs, investors may not be familiar with the new issue set to trade in the public markets. If the analyst community, however, uses a platform of some type to compare the international stock with a successful domestic business that investors are well aware of, this could make the international stock popular before it even begins trading in the new market.

The size of a new issue can affect IPO performance too. If there is a particularly large new issue that is planning to trade in the public markets, the stock will likely get a lot of attention from the media and financial analysts alike. Offering size could create increased demand for the issue because investors see the confidence that company executives and investment bankers involved in the IPO have on the deal.

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Discussion Comments


The internet has made researching public offerings so much easier than it used to be. Some traders do nothing more than trade IPO's. There is certainly some excitement involved with trading them.

I have usually made some nice profits when trading them as long as I have done my research and follow my game plan.

As always, when trading stocks, it is easy to get greedy. That is why I have a certain price point already determined where I am going to take my profit.

This doesn't always go as planned and the stock may not go up as high as I thought it would, and sometimes even drops.

I have also had times when I was able to trade the same initial public offering more than once in a single day and make a profit every time. It is nice to have days like that - they help to offset the trading days that aren't so profitable.


The stock market is something I watch on a regular basis, and have been trading stocks for many years. I am always interested in different methods of trading and how they work for people.

I knew one guy who traded a lot of initial public offerings. He would research and study about the company ahead of time and watch that particular stock all day long.

These were usually short term trades for him, and usually turned out to be day trades. Many times the price of the stock would shoot higher within the first few hours of trading and he would sell for a nice profit.

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