Aftermarket efficiency of IPOs: are the results different for developing countries ?

Abstract

Globalization of financial markets offers significant opportunities for profit maximization and/or portfolio diversification through successful international investing A proliferation of country-based mutual funds for the emerging capital markets is indicative of the interest in international investing in smaller capital markets. Available research evidence indicates that the stock markets in many such countries are inefficient, or efficient only in the weak form (Dawson, 1987). Gujarathi (1985, 1987) observed the initial performance for new equity share issues (IPOS) in India to be significantly positive. Intervention by the Government in setting up of the issue price was hypothesized to be the reason for such inefficiency in the IPO market. An interesting empirical research question arising out of the above studies is whether the capital market in a developing country such as India is efficient after the trading starts in the new issues. The present study attempts to make that enquiry.