Question A:
The large demand of passive investors for shares in SpaceX in the days after the IPO will cause substantial overvaluation of the stock.
Responses
Responses weighted by each expert's confidence
Question B:
Rebalancing of investors' portfolios to make room for SpaceX will cause measurable price pressure on other large growth or technology stocks in the days after the IPO.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 Viral Acharya |
NYU Stern | Bio/Vote History | ||
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Retail investors are chasing the skies at this moment of overvaluation in the market as a whole, and even the rational ones have FOMO, which is affecting the valuations they are willing to pay.
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 John Campbell |
Harvard | Bio/Vote History | ||
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I think this is likely - but only as an amplification of overvaluation resulting from the demand of other active investors, and only as a temporary phenomenon.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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This is a classic Modigliani-Miller fallacy. And a good investments exam question.
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Wenxin Du |
HBS | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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The Miller effect, that pessimistic investors are constrained by short selling costs, tends to cause overpricing. Shorting of private shares is very hard before an IPO.
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 Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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"Overvaluation" from inclusion is an index is real, but doesn't seem to be very large (perhaps 5% -- speculative estimate)
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Nasdaq changed their inclusion rules. Previously, they required 10% float. SPCX has 4%. New rule says if float<33%, then index weight 3x float. This could cause distortion and price pressure. S&P, Russell use straight float. 50% of demand will be indexers and closet indexers.
-see background information here |
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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 Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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at least for a few days
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 Arvind Krishnamurthy |
Stanford GSB | Bio/Vote History | ||
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Hanno Lustig computes that passive investors represent about 50-60bn of inelastic demand for the stock. With the initial float at 75bn, and considerable disagreement on the value of the stock, we have the ingredients for a Harrison-Kreps or Scheinkman-Xiong overvaluation.
-see background information here |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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 Loretta Mester |
UPenn Wharton | Bio/Vote History | ||
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Rule changes mean SpaceX will join the indexes very soon. Hard to say if the stock is overvalued but passive investors will be disadvantaged getting in after the IPO.
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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 Tyler Muir |
UCLA Anderson | Bio/Vote History | ||
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Clear force that will push the price up and it is large enough to matter. Not clear it will result in bad realized returns for SpaceX going forward, always massive uncertainty in return prediction for an individual stock.
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Probably some overvaluation due to short-selling being constrained and passive demand magnified by Nasdaq 100 3x float multiplier (which is far from market portfolio passive investing ideal). But not sure the effect will be "substantial."
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 Dimitris Papanikolaou |
Northwestern Kellogg | Bio/Vote History | ||
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Unclear, depends on liquidity of the underlying investment. Also, even if illiquid, unclear why ‘overvaluation’ would persist.
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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I am defining overvaluation relative to investors’ beliefs. Passive funds are adjusting their rules to include SpaceX sooner, suggesting that it is not passive demand pushing to buy SpaceX. I am more concerned about meme-stock overvaluation than “hold the market” investors.
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 Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Did Not Answer | Bio/Vote History | |
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 David Thesmar |
MIT Sloan | Bio/Vote History | ||
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Flows move prices, but it is unclear for how long. There will be a big incentive to short. The IPO valuation seems extremely high (about 100x sales).
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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The key issue is how the shares are indexed
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Inelastic indexing demand increases upward bias
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 Nancy Wallace |
Berkeley Haas | Bio/Vote History | ||
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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 Haoxiang Zhu |
MIT Sloan | Bio/Vote History | ||
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Index funds are not everything. Investments not in index funds will provide price discovery.
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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Viral Acharya |
NYU Stern | Bio/Vote History | ||
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It is unclear there will be large portfolio effects. It just feels like an "absolute bubble" territory of the market right now! But given the size of SpaceX IPO, maybe some...
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John Campbell |
Harvard | Bio/Vote History | ||
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Passive rebalancing by index funds and sector funds does seem likely to put downward pressure on the prices of peer stocks. But it is unclear how large the effect will be.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Wenxin Du |
HBS | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Yes, investors need to "make room" for a huge new stock. Index funds in particular will need to re-weight legacy index members. Arbitrageurs cannot completely offset this effect.
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Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Any temporary price pressure is a result of limited SPCX float. This is not the case with other growth and tech stocks which have plenty of liquidity.
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Arvind Krishnamurthy |
Stanford GSB | Bio/Vote History | ||
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Rebalancing will trigger flows that are relatively small relative to the demands for these other assets and the market's ability to absorb the flows.
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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Loretta Mester |
UPenn Wharton | Bio/Vote History | ||
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Tyler Muir |
UCLA Anderson | Bio/Vote History | ||
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Forced buying of spacex should push up Spacex. But its a relatively small rebalance out of each individual stock in the index. The flow in dollars nets to zero but denominators are different. In addition, would think Spacex doesn't have many super close portfolio substitutes
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Since the rebalancing is so predictable, any price pressure will probably be spread out over time, making it hard to measure.
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Dimitris Papanikolaou |
Northwestern Kellogg | Bio/Vote History | ||
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Unclear, depends on underlying liquidity.
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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The effect of inclusion of Tesla in the S&P500 on its price was essentially zero. In markets, when investors are paying attention, we will not have a predictable decline in prices (without a change in liquidity).
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Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Did Not Answer | Bio/Vote History | |
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David Thesmar |
MIT Sloan | Bio/Vote History | ||
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The amount sold in the IPO is a small fraction of the total, some $70bn. This is a drop in the ocean for tech firms.
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Nancy Wallace |
Berkeley Haas | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Haoxiang Zhu |
MIT Sloan | Bio/Vote History | ||
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