An Empirical Study on Influence of Grey Market Premium and listing gains on Investment in Initial Public Offering

Abstract

Grey market trading always involves short-selling as securities are not yet available. Since legal and institutional environment is less developed in emerging markets, the functioning of grey markets is of interest to policy makers and financial economists. Second, retail investors participate to a greater extent in IPOs of emerging markets, ostensibly due to the relative paucity of institutional investors.

Since prior research has shown that retail investors are more prone to overreaction, it is useful to examine if grey market prices proxy for investor sentiment. Finally, if grey markets are associated with price distortion in initial trading prices, then investors can potentially exploit this by using trading strategies. Our empirical results show that grey market prices are predictable and that these prices are associated with initial listing returns. Furthermore, selling at grey market prices and subsequent short-covering is shown to be profitable.

Demand for Initial Public Offering (IPO) has been very high in the Indian market in 2021-2022. Here retail investors have shown their great interest; the quota of retail investors is first oversubscribed on the very first day of an IPO. In this article, we will know what an IPO in the primary market is. When a new issue comes onto the market, so what is the problem in front of him? We are also a descriptive study of will, the grey market.

What is premium and whether the listing price of IPO is known correctly from GMP or not? In this, we will study all the IPOs that have come from 1 January 2021 to 31 December 2022.  From our research paper, it will be helpful to know whether listing can be gained by looking at the grey market. Does the price of the grey market affect the listing price of the IPO?