Digital Adoption and Price Discovery in Shadows: Evidence from Indian IPO Grey Markets between 2016-2025
Abstract
This study examines the role of digital adoption and price discovery through informal IPO markets in India. Due to price anomalies, sentiments around the IPO listing day are channelised through Informal markets known as grey markets. This study verifies the determinants of grey market IPO prices and their linkages with the formal market IPO under-pricing. Apart from dominant market and firm-specific factors, it examines how digital adoption variables such as digital payment usage and new demat accounts affect the IPO prices in both channels. In the post-pandemic period, there is a surge in the number of IPOs offered and participation of institutions and individuals in IPOs. Grey market allows traders to bid on IPO applications before they are officially listed, helping to assess under-pricing in issue prices, if any. This study uses data of 1,155 IPOs that went public in India between 2016 and 2025. Using OLS models, the study examines the relationships among variables, and findings indicate that both grey market activity and digital adoption directly influence listing day prices, confirming that under-pricing is predictable through informal channels. Investors should consider these factors, in addition to fundamental aspects, when making IPO investment decisions.
References
[2] Aggarwal, R., Bhagat, S., & Rangan, S. (2009). The impact of fundamentals on IPO valuation. Financial Management, 38(2), 253–284. DOI: 10.1111/j.1755-053X.2009.01035.x
[3] Banerjee, S., & Rangamani, K. T. (2015). Determinants of investor’s subscripton level of IPOs: Evidence from indian capital market in post mandatory IPO grading regime. DLSU Business and Economics Review, 24(2), 77–91.
[4] Bansal, R., & Khanna, A. (2012). Determinants of IPOs Initial Return: Extreme Analysis of Indian Market. Journal of Financial Risk Management, 1(4), 68-74. DOI: 10.4236/jfrm.2012.14012.
[5] Chandu, V., Kumar, T. K., Thyagaraju, M., & Reddy, K. P. (2024). An Empirical Study on Influence of Grey Market Premium and listing gains on Investment in Initial Public Offering. 30(December 2022), 344–353. DOI: 10.53555/kuey.v30i4.1470
[6] Deb, P. (2013). Signaling type and post-IPO performance. European Management Review, 10(2), 99–116. DOI: 10.1111/emre.12012
[7] Deng, Q., & Zhou, Z. G. (2015). Offline Oversubscription, Issue Size, and Market Momentum: The Driving Forces for ChiNext IPOs Initial Underpricing. Chinese Economy, 48(2), 114–129. DOI:10.1080/10971475.2015.993217
[8] Dorn, D. (2009). Does sentiment drive the retail demand for IPOs? Journal of Financial and Quantitative Analysis, 44(1), 85–108. DOI: 10.1017/S0022109009090024
[9] Fu, P., Yang, H., Qian, W., Mohamed, El. I., Almohri, W. A. J., & Alshanbari, H. M. (2025). Financial engineering and the digital economy: The implementations of machine learning algorithms. Alexandria Engineering Journal, 125(March), 311–319. DOI: 10.1016/j.aej.2025.03.122
[10] Gao, S., Brockman, P., Meng, Q., & Yan, X. (2020). Differences of opinion, institutional bids, and IPO underpricing. Journal of Corporate Finance, 60(September 2019), 1–19. DOI: 10.1016/j.jcorpfin.2019.101540
[11] Ghosh, C., Petrova, M., Feng, Z., & Pattanapanchai, M. (2012). Does IPO Pricing Reflect Public Information New Insights from Equity Carve‐Outs.pdf. Financial Management, 1–33.
[12] Jeroh, E., & Edesiri, G. O. (2015). An empirical analysis of share price determinants in Nigeria: A dividend and net asset replica. Scientific Papers of the University of Pardubice, Series D: Faculty of Economics and Administration, 22(33), 46–54.
[13] Krishnamurti, C., Thong, T. Y., & Ramanna, V. (2011). Institutional Knowledge at Singapore Management University Grey market for indian IPOs : Investor sentiment and after-market performance.
[14] Kumar, S., Meena, S., & Iqubal, M. (2025). Exponential Growth in Digital Transactions a Transformative Shift towards Cashless Economy UPI Transactions in 2024. Research Unit, Press Information Bureau, Government of India, January 1–3.
[15] Ljungqvist, A., & Wilhelm, W. J. (2005). Does prospect theory explain IPO market behavior? Journal of Finance, 60(4), 1759–1790. DOI: 10.1111/j.1540-6261.2005.00779.x
[16] Lowry, M., Officer, M. S., & Schwert, G. W. (2010). The Variability of IPO Initial Returns. Journal of Finance, 65(2), 425–465. DOI: 10.1111/j.1540-6261.2009.01540.x
[17] Meluzín, T., Zinecker, M., & Meluzínová, J. (2015). Macroeconomic and capital market determinants of initial public offerings: A Time-series analysis in the Polish capital market. Scientific Papers of the University of Pardubice, Series D: Faculty of Economics and Administration, 22(34), 101–112.
[18] Paleari, S., & Vismara, S. (2007). Over-optimism when pricing IPOs. Managerial Finance, 33(6), 352–367. DOI: 10.1108/03074350710748722
[19] Perera, W., & Kulendran, N. (2015). Why do IPOs leave money on the table for investors on the first day of trading ? A theoretical review. International Journal of Accounting & Business Finance, I, S. 25-41.
[20] Pukthuanthong-Le, K., & Varaiya, N. (2007). IPO pricing, block sales, and long-term performance. Financial Review, 42(3), 319–348. DOI: 10.1111/j.1540-6288.2007.00174.x
[21] Rani, P. (2014). An Empirical Examination of Firm Characteristics and Its Impact on Listing Day Return. International Journal of Finance and Accounting, 3(5), 277–285. DOI: 10.5923/j.ijfa.20140305.01
[22] Setiawanta, Y., Ghozali, I., Rohman, A., & Purwanto, A. (2020). Are financial statements (LESS) fundamental to investor’s decisions?: Study of indonesian stock exchange. Scientific Papers of the University of Pardubice, Series D: Faculty of Economics and Administration, 28(1).
[23] Sherif, M., Komenkul, K., & Xu, B. (2016). Prospectus disclosure and the stock market performance of initial public offerings (IPOs): The case of Thailand. Investment Management and Financial Innovations, 13(4), 160–179. DOI: 10.21511/imfi.13(4-1).2016.02
[24] Smitha, V., Shenoy, K. S. (2018). Determinants of IPO Listing day returns. International Journal of Scientific Research in Computer Science Applications and Management Studies, 7(4).
[25] Suresha B, Nayak, S., Krishna T A, & Thomas, R. (2023). Determinants of Book Built IPO underpricing–differential issue size and market momentum approach revisited. Cogent Economics and Finance, 11(2), 2023. DOI: 10.1080/23322039.2023.2281177
[26] Tajuddin, A. H., Abdullah, N. A. H., & Taufil Mohd, K. N. (2017). The influence of firm size on IPO oversubscription: Evidence from Bursa Malaysia. International Journal of Research in Management, Economic and Commerce, 7(8), 45–50.
[27] Yarram, S. R. (2014). Factors influencing on-market share repurchase decisions in Australia. Studies in Economics and Finance, 31(3), 255–271. DOI: 10.1108/SEF-02-2013-0021
[28] Zhang, Z., & Neupane, S. (2023). Global IPO Underpricing during the Covid-19 Pandemic: The Impact of Firm Fundamentals, Financial Intermediaries, and Global Factors. International Review of Financial Analysis, 91(August 2023), 102954. DOI: 10.1016/j.irfa.2023.102954
Non-Exclusive License under Attribution 4.0 International Public License (CC BY 4.0):
This ‘Article’ is distributed under the terms of the license CC-BY 4.0., which lets others distribute, remix, adapt, and build upon this article, even commercially, as long as they credit this article for the original creation. ASERS Publishing will be acknowledged as the first publisher of the Article and a link to the appropriate bibliographic citation (authors, article title, volume issue, page numbers, DOI, and the link to the Published Article on ASERS Publishing’ Platform) must be maintained.