Primary Capital Market Transactions and Index Funds *

Abstract

We document the effects of mechanical buying by CRSP-index-tracking funds on post-IPO returns and IPO deal structure. Leveraging a difference-indifferences style design built on a 2017 CRSP rule change, we find that expected index fund demand leads fast track IPOs to outperform non-fast track IPOs by 15 percentage points shortly after the IPO, although this outperformance largely reverts within six months. Further, fast track IPOs are priced higher and are more likely to be upsized, raising 7.7% more capital than similar non fast track IPOs, evidence that expected passive buying has real implications for firms raising capital in public markets.

Keywords: Passive Investing, Index Funds, IPOs, Primary Market Activity JEL Classification: G12, G14