This paper explores the relationship between the underpricing of initial public offerings (IPOs) and the ex ante uncertainty about the value of these offerings. The authors argue that there is a monotone relationship between the expected underpricing and the uncertainty investors have about the value of an IPO. They also propose that this underpricing equilibrium is enforced by investment bankers, who have reputation capital at stake. If an investment banker deviates from this equilibrium, either by underpricing too much or too little, they will lose potential investors or issuers, thus forfeiting their reputation capital. Empirical evidence supports these propositions. The paper is structured as follows: Section 2 develops the relationship between ex ante uncertainty and expected initial return, while Section 3 addresses how this underpricing equilibrium is maintained. Section 4 describes the data used in the empirical tests, and Section 5 presents and interprets the empirical results. Section 6 provides a summary and concluding remarks. The authors find that initial public offerings are, on average, underpriced, and that this underpricing is related to the ex ante uncertainty about the issue's value. They also find that investment bankers who deviate from the underpricing equilibrium lose market share, supporting the argument that they enforce this equilibrium. The appendix includes a formal model demonstrating the underpricing result under certain conditions.This paper explores the relationship between the underpricing of initial public offerings (IPOs) and the ex ante uncertainty about the value of these offerings. The authors argue that there is a monotone relationship between the expected underpricing and the uncertainty investors have about the value of an IPO. They also propose that this underpricing equilibrium is enforced by investment bankers, who have reputation capital at stake. If an investment banker deviates from this equilibrium, either by underpricing too much or too little, they will lose potential investors or issuers, thus forfeiting their reputation capital. Empirical evidence supports these propositions. The paper is structured as follows: Section 2 develops the relationship between ex ante uncertainty and expected initial return, while Section 3 addresses how this underpricing equilibrium is maintained. Section 4 describes the data used in the empirical tests, and Section 5 presents and interprets the empirical results. Section 6 provides a summary and concluding remarks. The authors find that initial public offerings are, on average, underpriced, and that this underpricing is related to the ex ante uncertainty about the issue's value. They also find that investment bankers who deviate from the underpricing equilibrium lose market share, supporting the argument that they enforce this equilibrium. The appendix includes a formal model demonstrating the underpricing result under certain conditions.