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Indian start-ups going public: return and volatility of stocks during bear and bull regimes

Author

Listed:
  • Khanindra Ch. Das

Abstract

Purpose - Start-ups are successful in receiving valuation in billions of US dollars prior to initial public offering (IPO). However, to sustain higher valuation, the stocks need to perform consistently after the IPO. Short-run stock performance of India-based start-ups during the first year of IPO listing from March 2021 to March 2022 is analysed. Design/methodology/approach - The paper deals with the new generation start-ups' stock performance in emerging market in terms of total and abnormal return generated in comparison to the market (NIFTY-200). Further, the volatility of returns during bear and bull regimes is analysed through a family of Markov-switching GARCH models using both normal and skewed distributions. Findings - The results suggest that start-up stocks are more volatile during bear regime than in the bull run in market-based economies where price limit policy does not apply. Besides, the cumulative abnormal return over the market return was lower for majority of start-up IPO stocks. Social implications - Though negative returns of the start-up stocks during the first year of IPO need not be surprising, higher volatility during bear regime is a matter of concern as it could severely impact retail investors and founders. The results hold implication for IPO regulation in emerging markets and for retail investors desirous of investing in start-up stocks. Originality/value - Volatility of return is examined using a state-space model during the first year of the start-up IPO listing. The study contributes to the emerging market IPO literature by examining IPO performance in market-based economy. Previous IPO performance studies in emerging markets are predominantly based on ecosystems where start-ups are subjected to price limit policy, and it does not reflect the true nature of IPO performance across emerging markets.

Suggested Citation

  • Khanindra Ch. Das, 2023. "Indian start-ups going public: return and volatility of stocks during bear and bull regimes," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 20(4), pages 1752-1772, July.
  • Handle: RePEc:eme:ijoemp:ijoem-06-2022-0898
    DOI: 10.1108/IJOEM-06-2022-0898
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    More about this item

    Keywords

    IPO performance; Start-ups; IPO overpricing; Regime-switching GARCH; Return; Volatility; G24; M13;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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