Sentiment Traders &Amp; Ipo Initial Returns: The Indian Evidence

Keywords

Initial returns; IPOs; Sentiment traders; Voluntary underpricing; Winner's curse

Abstract

We use India's unique regulatory design to test sentiment-based models of IPO initial returns. Using a sample of 362 Indian offerings from 2003 to 2014, we find that the traditional measure of IPO underpricing averages 23%. We decompose the traditional underpricing measure into two components: one related to voluntary underpricing by the underwriter and the other component related to the IPO's first-day trading activity. We find minimal levels of voluntary underpricing. However, initial returns on the first day average 14% and are primarily driven by the unmet demand of non-institutional investor groups. Overall, our results support sentiment-based models of IPO initial returns.

Publication Date

4-1-2016

Publication Title

Journal of Corporate Finance

Volume

37

Number of Pages

24-37

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jcorpfin.2015.10.007

Socpus ID

84958581051 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/84958581051

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