US IPO Performance During Monetary Tightening Cycles

This study examines whether U.S. monetary tightening cycles and market uncertainty are associated with initial public offering (IPO) underpricing. Using a sample of 1750 U.S. IPOs issued between 2003 and 2024, the analysis investigates three Federal Reserve monetary tightening cycles and employs multivariate regression models to examine the relationships between monetary-policy conditions, market uncertainty, proxied by the CBOE Volatility Index (VIX), and first-day IPO returns. The findings provide no consistent evidence that monetary tightening cycles are associated with higher IPO underpricing. Although descriptive evidence indicates higher underpricing during the 2022–2023 tightening period, the tightening indicators are not statistically significant in the controlled multivariate regressions. In contrast, market uncertainty is negatively associated with IPO underpricing. This relationship is statistically significant in the equity-only sample for both contemporaneous and one-day lagged VIX measures, while the lagged VIX also remains statistically significant in the full sample. These findings contribute to the IPO literature by showing that monetary tightening and market-based uncertainty exhibit different relationships with IPO pricing. The study also provides practical implications for issuers, underwriters, investors, and policymakers seeking to understand IPO pricing behaviour under changing macro-financial conditions.