Raising money by offering Initial Public Offering (IPO) has proven to be an effective mechanism for firms. A firm with the help of underwriters fix the issue price usually, 'leaving enough on the table'. This IPO underpricing has been well documented by various researchers across the globe, including the authors, in the Indian context. This phenomenon and the absence of any trading history make it difficult to determine the fair price of the stock. In case of markets being fully efficient, the listing price should reflect the fair value, and the price should be fairly stable after that. The authors challenge the notion of existence of strong form of efficiency in the Indian markets by providing empirical evidences on volatility and volume trading. To reduce this volatility, the authors have proposed several mechanisms such as use of anchor investors, price band on listing day, strengthening derivatives market and alternative method to book building in determining issue price.

1. Allen F and Faulhaber G. (1989): “Signalling by underpricing in the IPO market” Journal of Financial Economics; 23, pp. 303-23.
2. Anchor investors fail to fire up IPO market, accessed on 12 December 2010, <a href=http://articles.economictimes.indiatimes.com/2009-12-26/news/27653994_1_anchor-investors-investors-in-public-issues-qibs target="_blank">http://articles.economictimes.indiatimes.com/2009-12-26/news/27653994_1_anchor-investors-investors-in-public-issues-qibs</a>
3. Bandivadekar S and Ghosh S (2003), “Derivatives and volatility on Indian Stock Markets”, Reserve Bank of India Occasional Papers, Vol. 24, No. 3, pp. 1-4.
4. Baron D. (1982), “A model of the demand of investment banking advising and distribution services for new issues”, Journal of Finance, Volume 37, Issue 4, pp. 955-976.
5. Coal India IPO finds no takers, accessed on 4 December 2010, <a href=http://www.onemint.com/2010/10/18/coal-india-ipo-subscription-numbers/ target="_blank">http://www.onemint.com/2010/10/18/coal-india-ipo-subscription-numbers/</a>
6. Curran P J, West S G and Finch J F (1996), “The robustness of test statistics to nonnormality and specification error in confirmatory factor analysis”, Psychological Methods, 1, pp.16-29.
7. Ljungqvist, A. P., Jenkinson, T., Wilhelm, W. J., (2000), “Has the Introduction of Bookbuilding Increased the Efficieny of International IPOs”, working paper, pp. 1-57.
8. Madhusoodanan, T. P. and Thiripalraju M. (1997): “Underpricing in initial public offerings: The Indian evidence”, Vikalpa : The Journal For Decision Makers, 22, pp. 17-30.
9. Miller, Edward M., (1977), “Risk, Uncertainty, and Divergence of Opinion”, Journal of Finance , Volume 32, Issue 4, pp. 1151-1168.
10. Raju M T and K Karande (2003): “Price Discovery and Voltatility on NSE Futures Market” SEBI Bulletin, Volume 1, Issue 3, pp. 5-15.
11. Rock , Kevin (1986): “Why new issues are underpriced”, Journal of Financial Economics; 15, pp. 186-212.
12. SEBI mulls price band on IPO listing day, accessed on 5 December 2010, <a href=http://www.hinduonnet.com/2008/01/18/stories/2008011853811900.htm target="_blank">http://www.hinduonnet.com/2008/01/18/stories/2008011853811900.htm</a>
13. Shah, Ajay (1995): “The Indian IPO market: Empirical facts. technical report”, Centre for Monitoring Indian Economy, Mimeo, pp. 1-29.
14. Thenmozhi M (2002): “Futures Trading, Information and Spot Price Volatility of NSE-50 Index Futures Contract”, NSE Research Initiative, Paper no. 18, pp. 2-4.
15. Who are anchor investors?, accessed on 10 December 2010, <a href=http://sify.com/finance/who-are-anchor-investors-news-editors-picks-jj1lvIgcbah.html target="_blank">http://sify.com/finance/who-are-anchor-investors-news-editors-picks-jj1lvIgcbah.html</a>