Initial Public Offering

The Effect of Passive Investing on Initial Public Offering Stocks: Evidence from Russell Quarterly IPO Additions

**Abstract**: This study investigates the impact of passive investing on initial public offering firms by examining the Russell quarterly IPO additions. The findings show that stocks more likely to be included in the next quarterly additions experience bigger first-day returns, consistent with the hypothesis that underwriters do not fully incorporate the effect of potential inclusion in Russell indices on stock prices when they set the IPO price. During quarterly addition periods, included IPOs experience significant abnormal returns that are subsequently reversed, consistent with the price pressure hypothesis.