This study examines long-term performance of initial public offering (IPOs) in Thai stock market emphasizing on investor overly optimism and representative bias. While extensive global research has documented that IPOs underperform the market, limited evidence exists on whether such anomalies persist in emerging markets. Emerging markets are transition economies typically characterized by rapid growth, immature financial systems, high volatility and greater degree of information asymmetry compared with developed markets. Subsequently, this study employs the Thai stock market as a representative case of an emerging market to explore investor behavior in such environments.
A total of 243 IPO issued between 2010 and 2016 are analyzed, and their long-term performance are evaluated over three- and five-year horizons using three approaches: cumulative abnormal return (CAR), buy-and-hold abnormal return (BHAR) and Fama-French six- factor model (6FF). The Fama-French model which control systematic risks which incorporates a momentum factor is employed capture optimism and representativeness bias
Results reveal significant negative long-term abnormal returns across all measurement methods. Even after adjusting risk factors, the negative abnormal performance remains robust, with the SMB (size) factor remaining strongly significant This pattern suggests that optimistic investors in emerging markets tend to overvalue small and speculative IPOs, extrapolating recent success stories into future expectations. As fundamentals become clearer over time, prices revert downward, leading to persistent underperformance.
The findings contribute to behavioral asset pricing literature by showing that IPO mispricing in emerging markets is not solely a risk-based phenomenon but also a consequence of psychological biases. The results imply that improving disclosure quality and promoting investor education could mitigate optimism-driven mispricing and enhance market efficiency.