IPO Underpricing. Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me. After 3 months, my investment record is as follows:

a. What is the average underpricing of this sample of IPOs?

b. What is the average initial return on my “portfolio” of shares purchased from the four IPOs I bid on? Calculate the average initial return, weighting by the amount of money invested in each issue.

c. Why have I performed so poorly relative to the average initial return on the full sample of IPOs? What lessons do you draw from my experience?

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IPO Shares Allocated to Me Price per Initial Share Return ABCD 500 $10 7% 200 20 12 1,000 8 -2 0 12 23