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

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