History and theory
New shares rising above the offer price on day one—IPO underpricing—has been observed since the 1970s. In 1986 Kevin Rock explained it as a winner's curse: uninformed retail investors would be stuck with the unpopular deals, so issuers price low to keep them coming. In 1991 Jay Ritter showed US IPOs underperformed comparable firms over the three years after listing.
Korea's subscription system
Institutions bid prices and quantities in book building to set the offer price, followed by a retail subscription. Allocation used to be purely proportional to deposits, favoring the wealthy; since 2021 at least half of the retail tranche is split equally among applicants. That year SK Bioscience and KakaoBank drew tens of trillions of won in deposits.
Caution
Many chase "ttasang"—opening at double the offer price and hitting the daily limit—but prices often fall when institutional lock-ups expire. Check the offer price against P/E, whether the issuer is a split-off subsidiary, and its post-listing market cap against peers.
FAQ
- How many accounts do I need?
- An account at an underwriting brokerage; you may apply through only one broker per IPO.
- Are IPO shares always profitable?
- No—some open below the offer price or fall after lock-ups expire.
Sources reviewed: 2026-10-26
References
- Ritter, J. R. (1991). The long-run performance of initial public offerings. Journal of Finance, 46(1), 3–27.
- Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15(1–2), 187–212.
- 금융위원회. (2020). 공모주 일반청약자 배정 개선 방안 (균등배정 도입, 2020.11).