A study by Wisudanto et al., from Airlangga University, explores the impact of investor sentiment and market volatility on the initial returns of Initial Public Offerings (IPOs) on the Indonesia Stock Exchange (IDX). This analysis spans from 2009 to 2020, utilizing a sample of 285 issuers that meet specific criteria. This article delves into the key findings and implications of this comprehensive study.
Background
Initial Public Offerings (IPOs) represent a significant milestone for companies as they transition to public ownership. The initial return, defined as the difference between the IPO offering price and the closing price on the first trading day, is a crucial metric of an IPO’s success. Two primary factors influencing these returns are investor sentiment and market volatility.
Investor Sentiment refers to the overall mood and attitude of investors towards the market, which can drive demand and pricing for new stocks. Market Volatility measures the degree of variation in trading prices over time, reflecting the uncertainty and risk perceived by investors.
Research Methodology
The research employs multiple linear regression analysis to examine the relationship between investor sentiment, market volatility, and IPO initial returns. Control variables include:
- Gap of Days: The interval between the IPO filing date and the actual IPO date.
- Firm Age: The age of the company at the time of the IPO.
- IPO Size: The size of the IPO in terms of the number of shares offered.
- Firm Size: The overall market capitalization of the company.
Key Findings
The study reveals significant positive impacts of both investor sentiment and market volatility on IPO initial returns. Specifically:
- Investor Sentiment: High positive sentiment leads to higher initial returns, as optimistic investors are more likely to pay a premium for new shares.
- Market Volatility: Greater market volatility is associated with higher initial returns, possibly due to increased speculative activity and risk-taking by investors.
These findings suggest that periods of high investor enthusiasm and market fluctuation are favorable for IPO performance.
Implications for Stakeholders
The insights from this study are crucial for both investors and regulators:
- For Investors: Understanding the influence of sentiment and volatility can help in making more informed decisions when participating in IPOs.
- For Regulators: Institutions like the Financial Services Authority (OJK) in Indonesia can use these findings to monitor market conditions and implement policies that ensure market stability and investor protection.
Link Journal : https://repository.unair.ac.id/113870/