Asymmetric Information Rock (1986) proposed one of the first theories explaining underpricing.

Asymmetric Information Rock (1986) proposed one of the first theories explaining underpricing. He suggested that stocks are underpriced because of information asymmetries between different classes of investors. He segregated investors into informed investors (like institutional investors) who expend resources to ensure that they only buy IPOs that will yield positive returns over time and uninformed investors who buy stock indiscriminately and without information (Rock, 1986, p. 190). Could IPOs Be Lemons?