First-Day Share Pops After IPOs Signal Poor Medium-Term Results

Companies whose shares jump on the first day after their initial public offerings are more likely to underperform in the longer term, according to Morgan Stanley.

Companies with “bubble-level” first day returns tend to be unprofitable, and years with higher proportions of such firms are likely to see the best single-day returns, equity strategists Edward Stanley and Matias Ovrum said in a note to clients Tuesday. The study is based on IPO data going back to the 1990s.

For first-time share sales from 2020 to 2021, those that returned between 30% and 60% in their debut sessions underperformed the ...