What Determines Flipping Behaviour in an Emerging Market?
DOI:
https://doi.org/10.33736/ijbs.5195.2022Keywords:
Initial public offerings (IPOs), Quantile regression, Heterogeneity of opinion, Flipping activities, Fixed-price method, MalaysiaAbstract
This study explores the behaviour of initial public offerings (IPOs) investors in the immediate aftermarket. Specifically, this study investigates the role of investors’ heterogeneity of opinion and IPO initial return in determining their flipping activities in Malaysia. The results from the first model show that both IPO initial return and heterogeneity of opinion have a significant positive effect on flipping activities. Furthermore, the effect of heterogeneity of opinion is more pronounced than IPO initial return, which drives us to conclude that the former is the main explanatory variable of investors’ flipping activities in the immediate first-day aftermarket. The results of the second model show that most flipping activities happen when the price range is at its highest level in the secondary market. Finally, the study concludes that investors’ flipping activities in the Malaysian IPO market are driven by quick and riskless capital gains.
References
Abdul-Rahim, R., & Yong, O. (2010). Initial returns of Malaysian IPOs and Shari'a compliant status. Journal of Islamic Accounting and Business Research, 1(1), 60-74. https://doi.org/10.1108/17590811011033415
Abdul-Rahim, R., Sapian, R. Z., Yong, O., & Auzairy, N. A. (2013). Flipping activity and subsequent aftermarket trading in Malaysian IPOs. Asian Academy of Management Journal of Accounting and Finance, 9(1), 113-128.
Aggarwal, R. (2000). Stabilization activities by underwriters after initial public offerings. Journal of Finance, 55(3), 1075-1103. https://doi.org/10.1111/0022-1082.00241
Aggarwal, R. (2003). Allocation of initial public offerings and flipping activity. Journal of Financial Economics, 68(1), 111-135. https://doi.org/10.1016/S0304-405X(02)00250-7
Aggarwal, R., & Dahiya, S. (2005). Capital formation and the internet. Journal of Applied Corporate Finance, 11(1), 108-113. https://doi.org/10.1111/j.1745-6622.2000.tb00045.x
Albada, A., Low, S. W, Yong, O., Nassir, A. M., Kamarudin, F., & Anwar, N. A. M. (2019a). Heterogeneity of opinion, shareholder retention ratio and lockup period: Malaysian evidence. International Journal of Economics and Management, 13(1), 231-248.
Albada, A., Yong, O., & Low, S.W. (2019b). Relationship between prestige signals and over-subscription ratio: Evidence from Malaysian initial public offerings. International Journal of Managerial Finance, 15(4), 564-579. https://doi.org/10.1108/IJMF-02-2018-0067
Albada, A., Yong, O., & Low, S. W. (2020). Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence. International Journal of Emerging Markets, 15(2), 302-319. https://doi.org/10.1108/IJOEM-04-2018-0170
Albada, A., Yong, O., Hassan, M. E. M., & Abdul-Rahim, R. (2018). Retention ratio, lock-up period and prestige signals and their relationship with initial public offering (IPO) return: Malaysian evidence. Asian Academy of Management Journal of Accounting and Finance, 14(2), 1-23. https://doi.org/10.21315/aamjaf2018.14.2.1
Allen, F., & Faulhaber, G. R. (1989). Signalling by under-pricing in the IPO market. Journal of Financial Economics, 23(2), 303-323. https://doi.org/10.1016/0304-405X(89)90060-3
Ammer, M. A., & Ahmad-Zaluki, N. A. (2016). The effect of underwriter's market share, spread and management earnings forecasts bias and accuracy on under-pricing of Malaysian IPOs. https://doi.org/10.1108/IJMF-12-2014-0187
International Journal of Managerial Finance, 12(3), 1-26. https://doi.org/10.1108/IJMF-12-2014-0187
Badru, B. O., & Ahmad-Zaluki, N. A. (2018). Explaining IPO initial returns in Malaysia: Ex ante uncertainty vs signalling. Asian Review of Accounting, 26(1), 84-106. https://doi.org/10.1108/ARA-11-2016-0133
Barry, C., & Jennings, R. (1993). The opening price performance of initial public offerings of common stock. Financial Management, 22(1), 54-63. https://doi.org/10.2307/3665965
Bayley, L., Lee, P. J., & Walter, T. S. (2006). IPO flipping in Australia: Cross-sectional explanations. Pacific-Basin Finance Journal, 14(4), 327-348. https://doi.org/10.1016/j.pacfin.2006.01.002
Beatty, R. P., & Ritter, J. R. (1986). Investment banking, reputation, and the under-pricing of initial public offerings. Journal of Financial Economics, 15(1-2), 213-232. https://doi.org/10.1016/0304-405X(86)90055-3
Benveniste, L. M., & Busaba, W. Y. (1997). Bookbuilding vs. fixed price: An analysis of competing strategies for marketing IPOs. Journal of Financial and Quantitative Analysis, 32(4): 383-403. https://doi.org/10.2307/2331230
Boehmer, E., & Fishe, R. P. H. (2000). Do underwriters encourage stock flipping? A new explanation for the underpricing of IPOs [Unpublished working paper]. University of Miami. https://doi.org/10.2139/ssrn.228434
Chahine, S. (2007). Investor interest, trading volume, and the choice of IPO mechanism in France. https://doi.org/10.1016/j.irfa.2005.10.002
International Review of Financial Analysis, 16(2), 116-135. https://doi.org/10.1016/j.irfa.2005.10.002
Chang, E., Chen, C., Chi, J., & Young, M. (2008). IPO under-pricing in China: New evidence from the primary and secondary markets. Emerging Markets Review, 9(1), 1-16. https://doi.org/10.1016/j.ememar.2007.06.002
Chong, T. T. L., & Ng, W. K. (2008). Technical analysis and the London stock exchange: Testing the MACD and RSI rules using the FT30. Applied Economics Letters, 15(14), 1111-1114. https://doi.org/10.1080/13504850600993598
Che-Yahya, N., Abdul-Rahim, R., & Yong, O. (2014). Influence of institutional investors' participation on flipping activity of Malaysian IPOs. Economic Systems, 38(4), 470-486. https://doi.org/10.1016/j.ecosys.2014.03.002
Chong, F. N. (2009). Disposition effect and flippers in the Bursa Malaysia. Journal of Behavioral Finance, 10(3), 152-157. https://doi.org/10.1080/15427560903167712
Chong, F. N., Ali, R., & Ahmad, Z. (2009). Does noise signal affect flipping activities. International Journal of Banking and Finance, 6(2), 111-127.
Chong, F. N., Ali, R., & Ahmad, Z. (2011). Representative heuristics and the aftermarket dynamics of the new listings in Malaysia. Labuan Bulletin of International Business and Finance, 9, 1-11.
Chowdhry, B., & Sherman, A. (1996). International differences in oversubscription and under-pricing of IPOs. Journal of Corporate Finance, 2, 359-381. https://doi.org/10.1016/0929-1199(96)00002-8
Daniel, K., Hirshleifer, D., & Teoh, S. H. (2002). Investor psychology in capital markets: Evidence and policy implications. Journal of Monetary Economics, 49(1), 139-209. https://doi.org/10.1016/S0304-3932(01)00091-5
Ellis, K., Michaely, R., & O'hara, M. (2000). When the underwriter is the market maker: An examination of trading in the IPO aftermarket. Journal of Finance, 55(3), 1039-1074. https://doi.org/10.1111/0022-1082.00240
Fama, E., & French, K. (2007). Disagreement, tastes, and asset prices. Journal of Financial Economics, 83(3), 667-689. https://doi.org/10.1016/j.jfineco.2006.01.003
Fishe, R. P. H. (2002). How stock flippers affect IPO pricing and stabilization. Journal of Financial and Quantitative Analysis, 37(2), 319-340. https://doi.org/10.2307/3595008
Goldberg, J., & Nitzsch, R. (2001). Behavioral Finance. John Wiley and Sons.
Gounopoulos, D. (2006a). Activity in fixed offer price mechanism allocated IPOs [Unpublished manuscript]. University of Surrey. https://doi.org/10.1016/B978-075067975-6.50014-1
Gounopoulos, D. (2006b). Flipping activity in fixed offer price mechanism allocated IPOs. In G. N. Gregoriou (Ed.), Initial public offerings: An international perspective quantitative finance (pp. 159-176). Elsevier. https://doi.org/10.1016/B978-075067975-6.50014-1
Hong, H., & Stein, J. (2007). Disagreement and the stock market. Journal of Economic Perspectives, 21(2), 109-128. https://doi.org/10.1257/jep.21.2.109
Houge, T., Loughran, T., Suchanek, G., & Yan, X. (2001). Divergence of opinion, uncertainty, and the quality of initial public offerings. Financial Management, 30(4), 5-23. https://doi.org/10.2307/3666256
Huang, H., Chiang, M., Lin, J., & Lin, Y. (2017). Fixed-price, auction, and book-building IPOs: Empirical evidence in Taiwan. Finance Research Letters, 22, 11-19. https://doi.org/10.1016/j.frl.2017.04.002
Islam, M. S., & Munira, S. (2004). IPO flipping and its determinants in Bangladesh. Dhaka University Journal of Business Studies, 25(1), 1-23.
Loughran, T., Ritter, J. R., & Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 2(2-3), 165-199. https://doi.org/10.1016/0927-538X(94)90016-7
Low, S. W., & Yong, O. (2011). Explaining over-subscription in fixed-price IPOs: Evidence from the Malaysian stock market. Emerging Markets Review, 12(1), 205-216. https://doi.org/10.1016/j.ememar.2011.03.003
Low, S. W., & Yong, O. (2013). Initial public offerings and investor heterogeneity: Evidence from Malaysia. American Journal of Finance and Accounting, 3(1), 41-56. https://doi.org/10.1504/AJFA.2013.057176
Miller, E. (1977). Risk, uncertainty and divergence of opinion. The Journal of Finance, 32(4), 1151-1168. https://doi.org/10.1111/j.1540-6261.1977.tb03317.x
Mohd Rashid, R., Abdul-Rahim, R., & Yong, O. (2014). The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market. Economic Systems, 38(4), 487-501. https://doi.org/10.1016/j.ecosys.2014.03.003
Reese, W. A. (1998). IPO underpricing, trading volume, and investor interest [Unpublished manuscript]. Tulane University. https://doi.org/10.2139/ssrn.115348
Rock, K. (1986). Why new issues are under-priced. Journal of Financial Economics, 15(1-2), 187-212. https://doi.org/10.1016/0304-405X(86)90054-1
Tajuddin, A. H., Abdullah, N. A. H., & Taufil-Mohd, K. N. (2018). Shariah-compliant status and IPO oversubscriptions. Journal of Islamic Accounting and Business Research, 3(4), 531-548. https://doi.org/10.1108/JIABR-10-2017-0147
Tajuddin, A. H., Mohdrashid, R., Abdullah, N. A. H., & Abdul-Rahim R. (2015). An empirical examination of oversubscription in the Malaysian IPO market. International Journal of Economics and Management, 9(S), 81-102.
Tuyon, J., & Ahmad, Z. (2017). Psychoanalysis of investor irrationality and dynamism in stock market. Journal of Interdisciplinary Economics, 29(2), 1-38. https://doi.org/10.1177/0260107917697504
Vega, C. (2006). Stock price reaction to public and private information. Journal of Financial Economics, 82(1), 103-133. https://doi.org/10.1016/j.jfineco.2005.07.011
Wang, H., & Liu, X. (2014). The impact of investor heterogeneity in beliefs on share repurchase.
International Journal of Econometrics and Financial Management, 2(3), 102-113. https://doi.org/10.12691/ijefm-2-3-3
Yong, O., & Albada, A. (2018). Under-pricing and listing board in explaining heterogeneity of opinion regarding values of Malaysian IPOs. Jurnal Pengurusan, 51, 63-72. https://doi.org/10.17576/pengurusan-2018-52-05
Yong, O. (2007). Investor demand, size effect and performance of Malaysian initial public offerings: Evidence from post-1997 financial crisis. Jurnal Pengurusan, 26(1), 25-47. https://doi.org/10.17576/pengurusan-2007-26-02
Yong, O. (2010). Initial premium flipping activity and opening-day price spread of Malaysian IPOs. Capital Markets Review, 18(1-2), 45-61.
Yong, O. (2015). What is the "true" value of an initial public offering? Journal of Scientific Research and Development, 2(10), 78-85.
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
