Divergence Of Opinion, Representative Heuristics, Disposition Effect And Noise Trading In The Malaysian New Listings Market
Loading...
Date
2008-01
Authors
FEN NEE, CHONG
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Similar to those in many other countries, the phenomena of short-run and long-run
pricing anomalies of the Malaysian new listings market have been widely documented.
Nevertheless, studies which provide insights into the new listing market from the
behavioural finance theory perspective that relates to the new listings' aftermarket
inefficiency is limited. With an emerging market status and an average of 91.35% of
market participants made up of individual investors who are normally not-well-informed,
numerous researches have provided evidences on the inefficiency of the Malaysian
stock market. Driven by the investors' profile and these evidences, it is the objective of
this study to reduce the existing gap by examining the new listing market from the
behavioural finance perspective. Using 132 samples of new issues listed on the main
board from 1991 to 2003, the new listing market has been accessed using four
behavioural finance theories; divergence of opinion, representative heuristics,
disposition effect and noise trading theories.
Findings reveal an average initial underpricing of 66.51 % and a long-run
performance which is almost at par with the market return when both equally-weighted
and value-weighted returns are calculated. Furthermore, it is found that proxies for
divergence of opinion and representative heuristics have significant predictive power
over short-run return of new listings. The imposition of moratorium is found to have no
moderating effect over the relationship between proxies of divergence of opinion and
short-run return. Nevertheless, no explanatory power is found between proxies of
divergence of opinion and long-run return of the new listings. It seems that investors'
valuation system falls back to fundamental such as operating history after a lapse of
time.
Meanwhile, empirical test results also prove that the behaviour of flipping and
holding new issues of the new listing investors is significantly subject to disposition
effect. Assessments of the new listings' ex-post performance show that the motivation to
flip winners due to the fear that winners will become losers in the ex-post is justifiable
while the motivation to hold on to losers due to the belief that losers will perform
significantly better in the ex-post is unjustifiable. Besides, the motivation of holding the
losers due to anticipation of a mean revert, whereby losers will perform better than
winners in the ex-post is proven to be an erroneous belief.
Finally, analyses on the explanatory power of ex-ante factors and noise trading
proxy on immediate aftermarket behaviours show that the behaviours of the new listing
investors are Significantly affected by noise. On the other hand, fundamental variables
proxied using ex-ante factors such as operating history, subscription ratio and crisis
dummy are found to have no significant explanatory power over immediate aftermarket
behaviour.
Generally, based upon the findings, this study concludes that the aftermarket
behaviours of the Malaysian new listing investors are irrational and resemble that of an
emerging market whereby majority of the investors are individuals who are not- wellinformed.
Moreover, these behavioural drawbacks are able to explain the short-run
anomaly in the new listing market significantly
Description
Keywords
Divergence Of Opinion, Representative Heuristics, Disposition Effect And Noise Trading , In The Malaysian New Listings Market