The Consequences of a Democratized IPO Market: Evidence from Robinhood’s IPO Access Program

Posted: 10 Mar 2022

See all articles by David Gempesaw

David Gempesaw

Miami University

Joseph J. Henry

Rowan University - Accounting & Finance

Raisa Velthuis

Villanova University - Department of Finance

Date Written: February 8, 2022

Abstract

We evaluate the performance and determinants of IPOs allocated to retail investors through the Robinhood IPO Access program (“RIA IPOs”). The average total allocation is 3% of shares offered. Controlling for a set of well-studied IPO underpricing determinants, the average first-day return of RIA IPOs is 13 percentage points higher versus a similar group of non-RIA IPOs, driven primarily by the open-to-close return. Higher open-to-close returns correspond with higher retail order volume, but no observed difference in intraday volatility. In a reversal of this initial outperformance, the average RIA return is 18 percentage points lower over the next 30 days. Our results are consistent with the IPO Access program generating attention-induced retail trading and subsequent price reversals. In preliminary tests, we do not find evidence of issuers adversely selecting into the IPO Access program, contrary to the concerns of certain market observers.

Keywords: Initial Public Offerings, IPOs, Attention-Induced Trading, FinTech

JEL Classification: G11, G12, G30

Suggested Citation

Gempesaw, David and Henry, Joseph J. and Velthuis, Raisa, The Consequences of a Democratized IPO Market: Evidence from Robinhood’s IPO Access Program (February 8, 2022). Available at SSRN: https://ssrn.com/abstract=4030276

David Gempesaw

Miami University ( email )

Oxford, OH 45056
United States

Joseph J. Henry (Contact Author)

Rowan University - Accounting & Finance ( email )

Glassboro, NJ 08028
United States

Raisa Velthuis

Villanova University - Department of Finance ( email )

United States

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