Domestic and foreign institutional investors' investment in IPOs

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

The regulatory provisions in India ensure that IPO investors are able to observe the participation levels of other subscribers prior to their own subscription decisions. This should reduce the information asymmetry between the foreign institutional (FIIs) and domestic institutional investors (DIIs). We argue that because of this setting we should observe less difference in their investment patterns and performance. Our results, however, show that (a) FIIs subscribe to IPOs more aggressively than DIIs; (b) DIIs have better IPO selection ability than FIIs; and (c) in the post-listing period, FIIs reduce their IPO holdings more extensively than DIIs. FIIs reduce their post-listing holdings especially in firms that are smaller, younger, have higher stock volatility while increasing on stocks with higher returns, indicating that FIIs chase hot markets. Overall, in spite of transparency-enhancing regulations, the investment patterns of FIIs and DIIs differ significantly.

LanguageEnglish
Pages197-210
Number of pages14
JournalPacific-Basin Finance Journal
Volume39
Early online date25 Jun 2016
DOIs
Publication statusPublished - 30 Sep 2016

Fingerprint

Institutional investors
Stock volatility
Subscription
Transparency
Information asymmetry
India
Investors
Participation

Keywords

  • domestic institutional investors
  • foreign institutional investors
  • Indian IPOs
  • information asymmetry

Cite this

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title = "Domestic and foreign institutional investors' investment in IPOs",
abstract = "The regulatory provisions in India ensure that IPO investors are able to observe the participation levels of other subscribers prior to their own subscription decisions. This should reduce the information asymmetry between the foreign institutional (FIIs) and domestic institutional investors (DIIs). We argue that because of this setting we should observe less difference in their investment patterns and performance. Our results, however, show that (a) FIIs subscribe to IPOs more aggressively than DIIs; (b) DIIs have better IPO selection ability than FIIs; and (c) in the post-listing period, FIIs reduce their IPO holdings more extensively than DIIs. FIIs reduce their post-listing holdings especially in firms that are smaller, younger, have higher stock volatility while increasing on stocks with higher returns, indicating that FIIs chase hot markets. Overall, in spite of transparency-enhancing regulations, the investment patterns of FIIs and DIIs differ significantly.",
keywords = "domestic institutional investors, foreign institutional investors, Indian IPOs, information asymmetry",
author = "Suman Neupane and Biwesh Neupane and Krishna Paudyal and Chandra Thapa",
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Domestic and foreign institutional investors' investment in IPOs. / Neupane, Suman; Neupane, Biwesh; Paudyal, Krishna; Thapa, Chandra.

In: Pacific-Basin Finance Journal, Vol. 39, 30.09.2016, p. 197-210.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Domestic and foreign institutional investors' investment in IPOs

AU - Neupane, Suman

AU - Neupane, Biwesh

AU - Paudyal, Krishna

AU - Thapa, Chandra

PY - 2016/9/30

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N2 - The regulatory provisions in India ensure that IPO investors are able to observe the participation levels of other subscribers prior to their own subscription decisions. This should reduce the information asymmetry between the foreign institutional (FIIs) and domestic institutional investors (DIIs). We argue that because of this setting we should observe less difference in their investment patterns and performance. Our results, however, show that (a) FIIs subscribe to IPOs more aggressively than DIIs; (b) DIIs have better IPO selection ability than FIIs; and (c) in the post-listing period, FIIs reduce their IPO holdings more extensively than DIIs. FIIs reduce their post-listing holdings especially in firms that are smaller, younger, have higher stock volatility while increasing on stocks with higher returns, indicating that FIIs chase hot markets. Overall, in spite of transparency-enhancing regulations, the investment patterns of FIIs and DIIs differ significantly.

AB - The regulatory provisions in India ensure that IPO investors are able to observe the participation levels of other subscribers prior to their own subscription decisions. This should reduce the information asymmetry between the foreign institutional (FIIs) and domestic institutional investors (DIIs). We argue that because of this setting we should observe less difference in their investment patterns and performance. Our results, however, show that (a) FIIs subscribe to IPOs more aggressively than DIIs; (b) DIIs have better IPO selection ability than FIIs; and (c) in the post-listing period, FIIs reduce their IPO holdings more extensively than DIIs. FIIs reduce their post-listing holdings especially in firms that are smaller, younger, have higher stock volatility while increasing on stocks with higher returns, indicating that FIIs chase hot markets. Overall, in spite of transparency-enhancing regulations, the investment patterns of FIIs and DIIs differ significantly.

KW - domestic institutional investors

KW - foreign institutional investors

KW - Indian IPOs

KW - information asymmetry

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