Using data from the transparent Indian IPOsetting, the paper examines retailinvestors' participation, their influence on IPO pricing and the returns theymake on IPO investment. The transparency in the mechanism, which allowsinvestors to observe prior investors' participation,leads to demand which isconcentrated at either one or two points of the offer price range. Analysis ofinvestors' demand duringthe offer period shows that the participation of retailinvestors is significantly influenced by the participation of institutionalinvestors. We examine IPO pricing and find thatfavourable demand by retailinvestors is positively associated with a high IPO priceeven after controllingfor demand by institutional investors. Further, we find that due to aggressivebidding by overconfident investors, retail investors are, on average, unlikelyto make positive allocation weighted initial returns even in a setting wherethey do not have to compete with institutional investors. Retail investors,however, can earn significant positive allocation weighted initial returns ifthey limit their participation in IPOs with above average institutionalinvestors' demand.
展开▼
