Non-linear dynamics of hot and cold cycles in Indian IPO markets: evidence from Markov regime-switching vector autoregressive model

Manika Jain and Kakali Kanjilal

Macroeconomics and Finance in Emerging Market Economies, 2017, vol. 10, issue 2, 172-190

Abstract: The study aims to examine non-linear relationship between initial public offering (IPO) volume and average monthly initial returns for ‘hot’ and ‘cold’ issuing cycles in the Indian IPO markets using a two-state Markov regime-switching vector autoregressive model. The sample considers 557 IPOs during the period 2004–2014. The study establishes the presence of hot and cold states in Indian IPO markets. It finds bidirectional causality between IPO volume and initial returns for ‘hot’ issuing periods. The empirical findings suggest that the market possesses valuable information content in terms of the past issuing activity which has the potential to increase the predictability of future market behaviour.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:taf:macfem:v:10:y:2017:i:2:p:172-190

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DOI: 10.1080/17520843.2016.1244093

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