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Financial Risk and Management Reviews

March 2021, Volume 7, 1, pp 36-49

Modeling and Estimation of Cumulative Abnormal Return using VECM

Sri Ambarwati


Eka Sudarmaji


Herlan Masrio


Ismiriati Nasip

Sri Ambarwati 1 Eka Sudarmaji 1 ,
Herlan Masrio 1 Ismiriati Nasip 4

  1. Fakultas Ekonomi and Bisnis, University of Pancasila, Jalan Srengseng Sawah, Pasar Minggu Jakarta, Indonesia. 1

  2. Bina Nusantara University, Indonesia. 4

Pages: 36-49

DOI: 10.18488/journal.89.2021.71.36.49

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Article History:

Received: 24 June, 2021
Revised: 30 July, 2021
Accepted: 19 August, 2021
Published: 21 September, 2021


This paper examined how firm-level idiosyncratic risk varies over time. It affected initial public offering (IPO) in the presence of pump-and-dump and flipping trends during the early trading of IPO stocks in the Indonesia Stock Exchange. The paper used the IPO data taken from 181 companies during the year 2015-2019. It revisited the relationship between Cumulative Abnormal Return thirty-days (CAR30D) and Cumulative Abnormal Return five-days (CAR5D) and the Characteristics (IPO Floating shares, IPO Fund and Price) and Macroeconomics Condition (Inflation rate). It also used the cointegration analysis and VECM model. The paper found that Both LnFloat and LnPrice had causal evidence in the long-run causality or short-run with Cumulative Abnormal Return thirty days (CAR30D). We also noted that idiosyncratic risk exposure depends on IPO characteristics. It was crucial for firms going public in hot-issue markets, undervalued IPOs, and high idiosyncratic-risk issues. The model suggested that those series should cointegrate firstly. However, the variable of LnIPOFund had causal evidence in the short-run causality only.
Contribution/ Originality
This paper expected to fill the gap and confirmed what IPO characteristics and macroeconomics variables were significant and could predict that the IPO categorized into hot-issue markets, undervalued IPOs, and high idiosyncratic-risk issues.


VECM, Characteristics, IPO, CA5D, CA30D, Macroeconomics.


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This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.


All authors contributed equally to the conception and design of the study.

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