A Study on the Effects of Investors' Irrational Sentiment Index and Rational Sentiment Index on Long-term Performance for Listed Companies with Special Technology Cases
Authors:   Asia-Europe Perspective Association, Kim SungSin 
Published: December 2024

The study analyzed whether abnormalities in stock prices that occur after initial public offering can be explained by investor sentiment indexes for technology-specific listed companies and general listed companies. In this regard, the investor sentiment index was classified into an unexplained irrational part and a rational part based on economic fundamental. The investment sentiment index was orthogonalized with the relative strength index, psychological line index, adjusted turnover rate, and trading volume using Yang and Zhou (2015) methodology, and then new variables were calculated through principal analysis. According to Seok et al. (2019), a new variable was used as a dependent variable, and the macroeconomic environmental factors such as excess return on the stock market, term spread, credit spread, firm size, book to market ratio, and price to earnings per share ratio were analyzed. The estimated residuals and forecasts were used as substitutes for the irrational investment sentiment index and the rational investment sentiment index, respectively.
The results of the empirical analysis of this study are as follows. First, according to the test results of the average difference between major variables for technology-specific listed companies, the return on total assets was relatively low, and the debt ratio, public offering amount, one-year turnover rate, and buy-sell imbalance of individual investors for one and two years were high. In terms of long-term performance, the industrial adjusted return for two years was relatively low.
Second, according to the results of the generalized least squares regression analysis on long-term performance for one year after IPO, the turnover rate showed a negative (-) relationship except for some models. The public offering price adjustment rate showed a positive (+) relationship with long-term performance in some models, and the stock price fell when individual investors bought excessively. Irrational investor sentiment showed a positive (+) relationship with long-term performance in all models. In the emerging market, it can be seen that the price error phenomenon is not properly corrected due to the lack of smooth arbitrage and short selling. Rational investor sentiment showed a positive (+) relationship with long-term performance because it reflected expectations for the market outlook and information on the company's fundamental.
Third, even when it was expanded to long-term performance for two years, irrational investor sentiment maintained a positive (+) relationship with long-term performance and was not confirmed in rational investor sentiment.
Return on total assets showed a positive (+) relationship with long-term performance in some models, and investors seem to focus on the company's actual business performance after realizing the wrong belief in listed companies.
Looking at the long-term performance of technology-specific listed companies and general listed companies for two years, the decline in the long-term performance of technology-specific listed companies was more serious.