Green Shoe Options in Indian Primary Market

Authors

  • Dr. M. Venkataramana Reddy

Abstract

The primary market for securities plays an important role in economic development of a country, by enabling companies to mobilize financial resources from the public for undertaking various projects. The primary market also enables members of the public to invest their savings in gainful investment and allows investors to participate directly in the profits of the corporate sector.

Investors buy shares of companies in an Initial Public Offer (IPO) with the hope that the shares would trade in the secondary market at higher price. Investors would certainly be anxious if the price of the shares in the secondary market is highly volatile in the period immediately following the listing date. Such volatility is determined to invest confidence, to the image of the issuer company and the issue managers, and to capital markets at large. This necessitates some sort of price stabilizationmechanism. One such price stabilization mechanism is the Green Shoe Option (GSO).

References

Aggarwal R. (2003), “Allocation of Initial Public Offerrings and Flipping Activity”. Journal of Financial Economics, 68,(1), PP. 111-135

Aggarwal R K, “Stabilization Activities by Underwriters after Initial Public Offerings”. Journal of Finance, LV(3), June 2000

Anad M S, (2002), “Green Shoe Spells Dough for Merchant Bankers”. The Economic Times, April 2, 2004

Beatty R and Ritter J R, (1986), “Investment Banking, Reputation and the Pricing of Initial Public Offerings”. Journal of Financial Economics, 15, pp. 213-232

CESR, (2002), “Stabilization and Allotment: A European Supervisory Approach”, Committee of European Securities Regulators, Reference CESR/02-020B, April 2002

Chowdhry B and Nanda V (1996), “Stabilization, Syndication, and Pricing of IPOs”, Journal of Finance and Quantitative Analysis, 31(1), March 1996

Espinasse P. (2010), “An Unwelcome Spotlight on the Green Shoe”. Wall Street Journal, December 17, 2010

Published

2010-12-31

How to Cite

Dr. M. Venkataramana Reddy. (2010). Green Shoe Options in Indian Primary Market. International Journal of Economic Perspectives, 4(1), 18–31. Retrieved from http://ijeponline.org/index.php/journal/article/view/76

Issue

Vol. 4 No. 1 (2010)

Section

Peer Review Articles
Copyright & Licensing
Copyright (c) 2010 The Authors. Creative Commons License This journal is licensed under a Creative Commons Attribution 4.0 International License.

Allows users to: distribute and copy the article; create extracts, abstracts, and other revised versions, adaptations or derivative works of or from an article (such as a translation); include in a collective work (such as an anthology); and text or data mine the article. These uses are permitted even for commercial purposes, provided the user: gives appropriate credit to the author(s) (with a link to the formal publication through the relevant URL ID); includes a link to the license; indicates if changes were made; and does not represent the author(s) as endorsing the adaptation of the article or modify the article in such a way as to damage the authors' honor or reputation. CC BY