The role of overconfidence, social mood and media tone in IPO valuations : insights from the ASEAN member states

Abstract

This thesis takes a comparative approach in studying the IPO performances in the largest four markets in the Southeast Asian region, namely Singapore, Malaysia, Thailand and Indonesia (collectively known as the ASEAN-4), which are still under-researched. In particular, this thesis focuses on the role of overconfidence, social mood and media tones in IPO performances in the four markets, using IPOs listed from January 2000 to December 2013. Using robust event study methodology, the first empirical chapter identifies whether the investors in ASEAN suffer from overconfidence and self-attribution biases. The findings provide further support to the literature that overconfidence, a salient behavioural bias, exists in the ASEAN-4 region. Importantly, this thesis identifies that investors in Thailand and Indonesia are not only overconfident, but also suffer from self-attribution bias - a persistent overconfidence. In the second chapter, this thesis investigates the role of social moods in determining IPO initial returns and 3-year performance. Uniquely, this study is the first to employ three proxies of moods to represent various degrees of emotional intensities. Using the ordinary least squares (OLS) regressions, it was found that in general, positive (negative) moods surrounding a holiday is positively (negatively) linked to IPO underpricing. This suggests that positive social mood increases stock valuations around pre-holiday times. Interestingly, this thesis discovers that instead of turning into low mood following a long holiday, the positive mood can linger post-holiday, thus having positive impact on IPO initial valuations. The evidence of influence of social moods on long-run IPO performance is not conclusive for ASEAN-4. Finally, the third empirical chapter examines the influence of media tone in short-term IPO valuations using IPO-related news published in the English language. This study is one the first to test the applicability of the Loughran & McDonald (2011) in IPO contexts outside of an English speaking domain. In addition, a new IPO context-specific dictionary was constructed. Using the OLS regressions, it is evident that investors in Singapore and Malaysia are sensitive towards pessimistic tone in IPO-related news. The findings suggest that investors view pessimistic news as carrying higher ex ante uncertainty, hence requiring higher return to compensate their investment in the IPO with such a characteristic. Importantly, the findings suggest that context is crucial in shaping investors’ perceptions of meanings of words, that can vary depending on the contexts in which they are used. Collectively, the findings of this thesis suggest that human behaviour plays role in shaping investors’ valuation on IPO stocks, in particular in the aspects of overconfidence, emotion and mood, as well language interpretation