Domestic and foreign institutional investors' investment in IPOs

What is it about?

• We compare domestic & foreign institutional investors' investment in IPOs. • FIIs appear to be more aggressive in IPO subscription than DIIs. • FIIs reduce their IPO holdings more deeply than DIIs in post-listing period. • Evidence is consistent with the notion that FIIs chase hot markets with hot money.

Featured Image

Why is it important?

This study makes three major contributions to the literature. First, to the best of our knowledge this is the first study to investigate the investment patterns of DIIs and FIIs in the context of IPOs. Second, this study also adds to the investment behavior literature of DIIs and FIIs in an informationally transparent context where the concern of information asymmetry is lower than in other IPO markets. Finally, our study shows that although regulators can influence the level of transparency of the IPO process, the value of other externalities (e.g. the local knowledge possessed by DIIs and the enhanced access to superior expertise and extensive experience of FIIs) still influence the investment patterns and security selection abilities of institutional investors.