EconPapers    
Economics at your fingertips  
 

Transparency in IPO mechanism: Retail investors’ participation, IPO pricing and returns

Suman Neupane () and Sunil S. Poshakwale

Journal of Banking & Finance, 2012, vol. 36, issue 7, 2064-2076

Abstract: Using data from the transparent Indian IPO setting, the paper examines retail investors’ participation, their influence on IPO pricing and the returns they make on IPO investment. The transparency in the mechanism, which allows investors to observe prior investors’ participation, leads to demand which is concentrated at either one or two points of the offer price range. Analysis of investors’ demand during the offer period shows that the participation of retail investors is significantly influenced by the participation of institutional investors. We examine IPO pricing and find that favourable demand by retail investors is positively associated with a high IPO price even after controlling for demand by institutional investors. Further, we find that due to aggressive bidding by overconfident investors, retail investors are, on average, unlikely to make positive allocation weighted initial returns even in a setting where they do not have to compete with institutional investors. Retail investors, however, can earn significant positive allocation weighted initial returns if they limit their participation in IPOs with above average institutional investors’ demand.

Keywords: Initial public offerings; Transparency; Retail investors; IPO pricing; Winner’s curse (search for similar items in EconPapers)
JEL-codes: G24 G28 G32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426612000726
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:7:p:2064-2076

DOI: 10.1016/j.jbankfin.2012.03.010

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-11-24
Handle: RePEc:eee:jbfina:v:36:y:2012:i:7:p:2064-2076