The rapid expansion of Small and Medium Enterprise (SME) exchanges has fundamentally altered the landscape of entrepreneurial financing in emerging economies. Although SME IPOs have become increasingly attractive to retail investors due to their exceptional listing gains and lower entry barriers, the behavioral dynamics influencing these offerings remain insufficiently explored in financial literature. This study investigates the extent to which investor sentiment influences SME IPO pricing, subscription intensity, listing-day returns, aftermarket volatility, and long-run performance. Unlike conventional IPO studies that primarily focus on large-cap firms, this research concentrates on SMEs listed on dedicated SME platforms between 2018 and 2025. The study integrates traditional IPO theories with behavioral finance perspectives to evaluate how speculative enthusiasm shapes market outcomes in firms characterized by limited operating histories, lower liquidity, and higher informational opacity. Using a panel dataset of SME IPOs, the research employs multiple regression analysis, event-study methodology, and abnormal return estimation techniques. Investor sentiment is proxied through oversubscription ratios, grey market premiums, media attention, turnover activity, and prevailing market optimism indicators. The empirical findings reveal that investor sentiment exerts a statistically significant positive influence on listing-day returns and short-run aftermarket performance. IPOs receiving exceptionally high subscription demand generate substantially higher initial returns than fundamentally comparable firms with moderate investor participation. However, the findings also indicate that excessive optimism contributes to significant post-listing volatility and long-run underperformance. Firms experiencing strong speculative attention often undergo price correction within subsequent trading periods, suggesting temporary overvaluation driven by non-fundamental factors. Sector-wise analysis further reveals that technology-oriented and consumer-centric SME IPOs are particularly sensitive to sentiment fluctuations. The study contributes to the growing body of behavioral finance literature by extending sentiment-based explanations to SME capital markets, an area still underrepresented in empirical research. The findings offer practical implications for investors, merchant bankers, regulators, and policymakers attempting to create more efficient and transparent SME financing ecosystems.
Saurobh kumar barick (Fri,) studied this question.