The equity underpricing puzzle: A case of untoward/weird data selection

Investors and other financial economists are interested in how the stock market values a firms equity (i.e. shares). In the fundamental sense, the value of a firm's shares should reflect investor's expectations of the firm's future profitability and sustainability. However, data on expected future profitability is non existent and uncertain. One has to rely on the past performances of the firm to determine them. There is a conflict between earlier researches and the recent ones regarding the undervaluation of IPOs of companies in comparison with their FPOs/SEOs. In this paper we make an attempt to empirically establish the overvaluation of IPOs with respect to the FPOs and provide appropriate reasoning for that.