Behavioral Finance-IPO- in Indonesia

Abstract

Market Efficiency has been experiencing conflicts since the introduction of the elements of psychology in economic and financial literature. This has led to the diversion of the focus of financial studies from fundamental analysis to investor sentiment due to psychological bias. These two studies complement each other in understanding investors’ patterns or in predicting stock prices. Several studies have been conducted to determine the application of the two theories. This research therefore used the Ordinary Least Square Model (OLS) on 270 companies with IPO on the Stock Exchange during the 1980-2015 period. The purpose was to test investor sentiment using NIPO and RIPO proxies while the fundamental factors used the proxy LEV, LIA, and ROE in predicting stock prices in Indonesia. The results indicated fundamental factors are considered in assessing stock prices during an IPO. In addition, this research proved that the Efficient Market Hypothesis is included in the semi-strong form which means it is better to value stock prices through the use of a combination of fundamental factors and financial behavior.