The Psychology of IPO Pricing: Overhype, Anchoring, and Real Returns

This paper investigates the behavioral underpinnings of IPO pricing and performance, revealing how psychological biases—anchoring to offer price, media-fueled hype, and investor FOMO—skew rational decision-making. Drawing on empirical data (including Ritter’s IPO returns dataset and NSE/BSE trends), it highlights the gap between day-one excitement and long-term reality. Through global case studies like Rivian and WeWork, the paper explores how investor sentiment, flawed narratives, and lock-up expiry dynamics contribute to underperformance. It concludes with practical implications for retail investors, regulators, and educators, advocating for the integration of behavioural finance into investment decision-making and public policy.