Diaspora Between Asymmetric and Behavioral Theories in the Indian IPO Markets

Abstract

Underpricing of the IPO's and market efficiency play a crucial role in the primary markets as suggested by asymmetric information models. Under pricing is where issuers intentionally offer the share prices in the primary markets below their fair value. Market Efficiency helps in identifying the fair value of the shares. On the first day of trading if the prices of the respective company's shares increase it is evidence of undervaluation or vice versa. This paper tries to ascertain the relevance ofthe asymmetric information models for the IPO's listed on National Stock Exchange (NSE) between periods 2001-2010. The second aspect of study in this paper is on the interpretation of several alternative behavioral theories of IPO pricing and their extent of relevance in the Indian primary market. The results agree with the asymmetric information models and strongly disagree with the hypothesis suggested by various behavioral theories.