With several high-profile initial public offerings (IPOs) expected in 2026, many investors may be wondering whether buying a stock on its first day of trading is a smart move. Historically, stock performance in the first year post-IPO has been a mixed bag of volatility, with a large minority delivering excess returns in their first year of trading, while a slight majority deliver negative returns. In today’s blog, we analyze data on 30 years of selected IPOs and highlight some recent changes that will likely impact some of the coming year’s largest expected new issues.

 

Starting with the data, we pulled IPOs from the last 30 years that have traded for at least one year, thus approximately April 1995 to April 2025. We filtered the dataset to only include issuances on the NYSE or Nasdaq exchanges and set a floor on the capital raised in the IPO to $50 million. Finally, we included only IPOs of common stocks, excluding REITs, Master Limited Partnerships (MLPs), and other non-common equity issues. This left us with about 1,500 IPOs over the sample period (1,494 to be exact) that offered up over $600 billion in equity ownership for new issues.

 

As for performance, we started with a one-year time horizon from the closing price of the first day of trading. We chose the closing price instead of the offer price because ordinary investors rarely have access to the offer price, as the investment banks often allocate much of the shares they have underwritten to large institutional investors. One can quibble with the rationale here, but given typical volatility on the first day an IPO trades, this approach made the most sense. Getting into the findings, starting with one-year price-based returns from the closing price of the first day of trading, the average return generated was 10.5%. You may be thinking that’s not too bad, about in line with equity market expectations. However, averages in this analysis introduce an upward bias, as hypothetically there is no ceiling on the positive returns, but a floor on the losses, as the most an unleveraged investor can lose on an investment is 100%. The range of outcomes in this dataset is very large, and dispersion (volatility) is high; the standard deviation of the one-year returns is 107%. When we measure the median return of the sample, we get a more realistic picture of the potential outcome, a negative return of -4.7%. Interestingly, the middle 50% of outcomes in the distribution are pretty evenly distributed, with the bottom 25th percentile landing at -38.9%, and the top 25th percentile coming in at 36.2%. In terms of a simple distribution of the percentage of IPOs that generated positive returns in their first year of trading compared to those that produced negative returns, the split was relatively close, with the percent positive (46.1% of the sample, producing an average return of 68.7%) slightly below the percent negative (53.9% of the sample, producing an average return of -39.2%). So slightly skewed to the downside, with a very wide distribution of outcomes in the tails.

 

The large standard deviation tells the story of the variation of outcomes at the finish line, but what about the journey to get there? For that, we calculated the maximum drawdown experienced in the first year of trading for every IPO in our sample. The average drawdown experienced was -48.9%, and the distribution for this dataset was much less volatile than the average one-year return, with the median drawdown coming in at -48%, with a standard deviation of 22%. Said another way, while the variation of outcomes was wide, the variation in the journey was much more similar; that is, it was typically a pretty volatile ride regardless of the ending outcome.

 

One final bit of data analysis we took on was comparing the one-year returns of the IPO data set to the returns of the S&P 500 based on each IPO's one-year return window. This allowed us to somewhat normalize the outcomes based on how the broad market performed in the year. We get a slightly more negative outcome, with the average difference in performance coming in at 2.4%, with the median performance difference coming in at -12.5%. The volatility in the distribution was similar, as would be expected. The percentage of IPOs that outperformed the S&P 500 was slightly below the percentage that produced positive returns, with just 40.6% producing one-year returns above the S&P 500 during the first year of trading, while 59.4% underperformed. Finally, in terms of drawdowns, only 6.7% of IPOs in the sample (56 total) experienced a less severe drawdown than the S&P 500 during the one-year period. Diversification does its job yet again.

 

Understanding why these outcomes occur can help investors avoid common pitfalls and better time entry into newly public companies. IPOs have historically had a few things working against them. First, both management and the investment bank or banks involved in the IPO have a vested interest in maximizing the company’s valuation. Whether driven by hopes and dreams or strong fundamentals, higher valuations imply a higher hurdle for future earnings to keep investors excited and engaged. Taking a private company public also creates a liquidity event for existing shareholders. Insider ownership stakes may be sold on the exchanges after a pre-determined lockup period, which adds to expected selling pressure post-IPO. Compounding all of this from the perspective of retail investors is limited access to the initial offering price. The benefit of any pop in price during the initial hours of trading generally accrues to institutional investors that received allocations from the underwriting investment bank(s).

 

While these historical patterns are important, they may not be a perfect guide for the upcoming wave of large IPOs. Structural changes in how indexes handle new listings could alter the typical post‑IPO experience.

 

IPOs also traditionally face hurdles for index inclusion. These requirements vary across indexes but generally include float minimums and a minimum amount of time trading on the exchanges for “seasoning” to ensure stability and liquidity requirements are met. This seasoning period delays the mechanical buying associated with index inclusion when passive funds are forced to buy to mimic the index. In response to heavy lobbying from management teams at large private companies expected to IPO this year, index providers are loosening constraints to speed up index inclusion under the guise of ensuring indexes “are more representative of the U.S. equity market sooner” (FTSE Russell Market Consultation, February 2026).

 

The takeaway for investors is not to avoid IPOs altogether, but to approach them thoughtfully. As seen in the analysis of 30 years of IPO data, there have been a wide range of outcomes, with some massive home runs driving up the average returns, and many strike outs pulling the median measure of one-year returns lower. We suggest investors proceed with any IPO investment with caution and expect to experience a great deal of volatility.

 

• LPL Financial prohibits the purchase of equity IPOs within client accounts.

 

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