IPO Underpricing in India

Abstract

Few financial market phenomena have received as much attention as the underpricing of Initial Public Offerings (IPOs). There remains little consensus as to why this underpricing persists, whether it is 'bad', and how sustainable it is. Even the weakest form of the efficient market hypothesis seems to suggest that this underpricing should not exist. Economists have offered a variety of explanations. Unfortunately, though, they have failed to reach agreement as to the validity and relative significance of each of their theories. This paper empirically examines whether underpricing exists in the Indian stock markets and what is the effect of various factors such as bullish and bearish market, or hot and cold periods on the level of underpricing.