Herd Behaviour among Young Investors in IPO Subscription

This study examines herd behaviour of young investors in their IPO subscription decisions. Through a questionnaire administered to 155 young investors (aged 18-35) and the use of SPSS for statistical analysis, this paper identifies investor attention (measured by level of attention by the media and news) and investor sentiment (overall outlook towards the market) as the drivers of herd behaviour, which subsequently leads to their IPO subscription behaviour. The results suggest that attention influences investor sentiment (=0.274, p<0.001), which, in turn influences herding behaviour significantly (=0.330, p<0.001). Attention also directly influences herding behaviour positively (=0.355, p<0.001), and the total effect of attention on herding behaviour is of significant magnitude (=0.446, p<0.001), which implies partial mediation effect. All the assumptions of the research hypothesis are verified in this study. The study implications are for the young retail investors to beware of the danger in following the heard. Financial advisors should advise for rational, independent study for avoiding herding behaviour irrationally. Further, this study suffers from cross-sectional analysis, sample selection problem (convenience sample) and relies on self-reporting of answers. In future work, these variables could be used to study herd behaviour of different classes of investors, using experimental or longitudinal studies, other psychological biases related to IPO investment behaviour can also be investigated.