For most IPOs, the allocation is significantly less than the indication of interest. The allocations are meted out based on commission volume, trading history and type of investor. Trading volume in IPOs is extremely high on the first day due to flipping and aftermarket purchases.
Trading volume can decline precipitously in the following days.
However, to obtain a better benchmark of IPO aftermarket performance, some investors track performance from the first day close. These securities are called receipts because they represent a certain amount of the company's actual shares. Examples of ADRs are France Telecom, British Sky Broadcasting and Equant. When a company is considering doing an IPO, the company's executives typically interview a number of investment banks to determine which ones would do the best job of managing the offering and provide ongoing research reports once the company is public. The parade of investment bankers through a company's offices is known as the beauty contest.