Do IPO Hot and Cold Markets Exist at the Indonesia Stock Exchange?


  • Doni S. Warganegara Universitas Lampung
  • Dezie L. Warganegara Bina Nusantara University



IPO, initial returns, hot IPO Market, cold IPO Market, Indonesia stock exchange


This study focuses on IPO Initial Returns in Hot and Cold IPO Markets at the Indonesia Stock Exchange (IDX) between the period of 2001 and 2005. This study uses a regression analysis where the first day IPO stock return is the dependent variable and a dummy variable that represents Hot and Cold IPO Markets is the main independent variabel. It is found that Hot and Cold Markets do exist at the IDX. More importantly, it is found that the difference in IPO Initial Returns between Hot and Cold Markets while controlling for other factors is 36.8%. The Investment Sentiment Hypothesis has been found to explain the existence of Hot and Cold Markets. The hypothesis implies that jumps in IPO Initial Returns during Hot Markets are due to the increase in the first day closing prices which are higher than the increase in the offering prices. The Monopsony Power Hypothesis and information spillovers across IPOs respectively may also provide alternative explanations to the phenomenon. Investment banker community in a small economy learns information from each other and, thus, has full information on the number of firms that will go public in the following period. Consequently, investment bankers have a high bargaining power of investment bankers in lowering the offering prices.



Plum Analytics

Author Biographies

Doni S. Warganegara, Universitas Lampung

Accounting Department

Dezie L. Warganegara, Bina Nusantara University

Accounting Department


Alti, A., (2005). IPO market timing. Review of Financial Studies, 18(3), 1105–1138.

Benveniste, L. M. and Spindt, P. A. (1989). How investment bankers determine the offer price and allocation of new issues. Journal of Financial Economics, 24(2), 343–361.

Butler, A. W., Keefe, M. O., and Kieschnick, R. (2014). Robust determinants of IPO underpricing and their implications for IPO research. Journal of Corporate Finance, 27, 367–383

Chemmanur, T. and Fulghieri, P. (1999). A theory of the going-public decision. Review of Financial Studies, 12, 249-279.

Chemmanur, T. and He, Jie. (2011). IPO waves, product market competition, and the going public decision: Theory and evidence. Journal of Financial Economics, 101, 382–412.

Daniel, K. (2002). Discussion on why don't issuers get upset about leaving money on the table. Review

of Financial Studies, 15, 445–454.

Helwege, J. and Liang, N. (2004). Initial public offerings in hot and cold markets. Journal of Financial and Quantitative Analysis, 39, 541–560.

Ibbotson, R. G. (1975). Price performance of common stock new issues. Journal of Financial Economics, 2, 235–272.

Ibbotson, R. G. and Jaffe, J. F. (1975). Hot issue markets. Journal of Finance, 30, 1027–1042.

Kahneman, D. and Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291.

Loughran, T., and Ritter, J. (2002). Why don't issuers get upset about leaving money on the table.

Review of Financial Studies, 15(2), 413–443.

Lowry, M., and Schwert, G.W. (2002). IPO market cycles: Bubbles or sequential learning? Journal of Finance, 57, 1171–1198.

Lowry, M. (2003). Why does IPO volume fluctuate so much? Journal of Financial Economics, 67, 3-

Maksimovic, V. and Pichler, P. (2001). Technological innovation and initial public offerings. Review of Financial Studies, 14(2), 459–494.

Reilly, F.K. and Hatfield, K. (1969). Investors experience with new stock issues. Financial Analysis Journal, 25, 73–80.

Ritter, J. (1984). The hot issue market of 1980. Journal of Business, 57, 215–240.

Rock, K. F. (1986). Why new issues are underpriced. Journal of Financial Economics, 15, 187– 212.

Stoughton, N., Wang, K. and Zechner, J. (2001). IPOs and product quality. Journal of Business, 74(3),


Welch, I. (1992). Sequential sales, learning and cascades. Journal of Finance, 47, 695–732.



Abstract 626  .
PDF downloaded 402  .