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The Tale of One Market Inefficiency: Abnormal Returns around GDR Issues by Indian Firms


  • Ajay Shah


This article relates the experience of abnormal returns on the Bombay Stock Exchange surrounding the pricing date of GDR issues by Indian firms. On 15 May 1994, empirical evidence suggesting that such abnormal returns do exist was released into the information set of agents in the financial industry. Today, as many GDR issues have taken place after 15 May 1994 as had taken place before, and we can measure how this mispricing has changed. We find that the extent of mispricing has dropped sharply: the highest point in the average cumulative returns in excess of the market index over the weeks preceding the pricing date have dropped from 18.9\% for the 20 GDR issues before 15 May 1994 to 6.9\% for the 26 GDR issues after this date. This reduction in the extent of mispricing is consistent with our understanding of arbitrage by rational agents in financial markets.

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  • Ajay Shah, 1995. "The Tale of One Market Inefficiency: Abnormal Returns around GDR Issues by Indian Firms," Finance 9507001, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:9507001
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    References listed on IDEAS

    1. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
    2. Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-1860, December.
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    Cited by:

    1. Michael Pinegar, J. & Ravichandran, R., 2002. "Global and local information asymmetries, illiquidity and SEC Rule 144A/Regulation S: The case of Indian GDRs," Journal of Banking & Finance, Elsevier, vol. 26(8), pages 1645-1673, August.

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    JEL classification:

    • G - Financial Economics


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