When-issued trading in the Indian IPO market

We examine the contribution of when-issued trading to price discovery and underpricing in the Indian IPO market. Besides the when-issued trading, there exists IPO grading, analyst recommendation, group affiliation, and the subscription rates in the bookbuilding process. We examine the impact of these activities and find three sequential factors that explain the IPO underpricing. Higher grades for an IPO lead to higher when-issued premiums, which in turn leads to higher subscription rates. Then, higher subscription rates lead to higher IPO underpricing. Overall, we find that the when-issued trading plays an important role in price discovery in the Indian IPO market.