We examine how context-specific experience is correlated with the performance of institutional investors. Specifically, we explore how previous initial public offering (IPO) trading experience affects foreign institutional investors’ selection, bidding, and the profitability of their future IPO investments. We find that investors who participate more frequently (i.e., those with more context-specific experience) exhibit different behaviors from those who participate less frequently. After controlling for investor fixed effects and time-varying heterogeneity, we find that only high-frequency investors improve their profitability over time by appropriately varying their subscriptions across IPOs. The effect of context-specific experience also appears to dominate other forms of general investment experience.

Using insights from prosecuted cases, we present compelling evidence of large-trade based manipulation in a sizeable number of Indian IPOs that, in all likelihood escaped enforcement actions. Consistent with the pump-and-dump scheme these IPOs exhibit abnormally high volume of large trades, a significant fraction of which originates from a syndicate of traders present in the prosecuted IPOs. More importantly, stock price in the manipulated IPOs rises initially on account of artificial trades, but then declines significantly as the manipulators exit the market. Interestingly, not all attempts at manipulation are entirely successful as stock price in some of the manipulated IPOs crash on the first day of listing.