Sentiment Traders & IPO Initial Returns: The Indian Evidence

Research output: Contribution to journalArticle


We use India’s unique regulatory design to test sentiment-based models of IPO initial returns. Using a sample of 362 Indian offerings from 2003-2014, 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.

Bibliographical metadata

Original languageEnglish
Pages (from-to)24-37
JournalJournal of Corporate Finance
Early online date28 Oct 2015
Publication statusPublished - Apr 2016

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