Trading term
What is Underpricing?
Underpricing is the gap between an IPO's offer price and where the shares actually trade once the market opens. Across 1980-2025 the average US first-day return was 19.0%, and companies left $250.1 billion on the table against $1,190 billion raised.
The offer price is set the night before trading starts. If the shares open above it and close their first day higher still, the deal was underpriced. The people allocated shares got an instant gain, and the company sold its shares for less than the market was willing to pay. That second half has a name: money left on the table, defined as the first-day gain multiplied by the number of shares sold.
It is not a rare accident. In Jay Ritter's series of 9,343 US IPOs from 1980 to 2025, the average first-day return is 19.0% equally weighted and 20.6% weighted by proceeds, and the money left on the table totals $250.1 billion against $1,190 billion raised. That's about 21 cents given away for every dollar the companies collected.
The averages hide how uneven it is, in two separate ways. First, the median first-day return over the whole series is 7.0%, well under the 19.0% mean, because a handful of enormous pops drag the average up. 1999 is the extreme: a 71.2% average first-day return and $37.11 billion left on the table in one year. Second, an equally weighted average counts a tiny deal the same as a giant one. 2022 printed a 48.9% average across just 38 IPOs, but weighted by proceeds it was 14.2%, and under a billion dollars was left on the table all year.
For example
Take the example offering from our IPO article: 20 million shares priced at $24 that close their first day at $33. That's a 37.5% first-day return for whoever was allocated shares, and $180 million left on the table by the company. Round example numbers, not a real deal.
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Explore Premium →Why it matters to you
Underpricing is exactly why an IPO has two entry prices, and Ritter measured what each one was worth. Over three years from 1980 to 2024, buying at the offer price returned 36.3% on average, trailing the market by 3.3 points but beating a matched company by 8.3 points. Buying at the first close returned 19.1%, trailing the market by 20.5 points and the matched company by 8.9 points. Seventeen points of that difference is the first-day pop, and the pop is the part most people can't get.
⚠ The average pop is not the typical deal
19.0% sounds like what an IPO does. The median across the same 9,343 deals is 7.0%, and plenty of IPOs fall on day one. In 2008 the median first-day return was −1.7%, and in 2023 it was −0.5%: in both of those years, more than half of the IPOs closed at or below their offer price. An average this skewed describes the tail, not the middle.