Domestic and foreign institutional investors' investment in IPOs

Suman Neupane, Biwesh Neupane, Krishna Paudyal, Chandra Thapa

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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.
Original languageEnglish
Pages (from-to)197-210
Number of pages14
JournalPacific-Basin Finance Journal
Publication statusPublished - 25 Jun 2016


  • Information asymmetry
  • Indian IPOs
  • Domestic institutional investors
  • Foreign institutional investors

ASJC Scopus subject areas

  • Finance


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