Sentiment traders & IPO initial returns: The Indian evidence

Jonathan Clarke, Arif Khurshed, Alok Pande and Ajai K. Singh

Journal of Corporate Finance, 2016, vol. 37, issue C, 24-37

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.

Keywords: IPOs; Winner's curse; Voluntary underpricing; Initial returns; Sentiment traders (search for similar items in EconPapers)
JEL-codes: G11 G15 G18 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:37:y:2016:i:c:p:24-37

DOI: 10.1016/j.jcorpfin.2015.10.007

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