Determinants of IPO stock market liquidity in a small emerging economy

This paper investigates the factors that determine liquidity in the secondary market following initial public offerings (IPOs) in Tunisia. The study examines the impact of IPO return and investor sentiment index on IPO liquidity using two separate models. The research analyzes a sample of 35 IPOs listed on the Tunis Stock Exchange from 2005 to 2020. The findings reveal that initial underpricing is significantly associated with high illiquidity, suggesting that underpricing compensate for aftermarket illiquidity. Additionally, the study shows that investor sentiment plays a significant role in determining aftermarket liquidity on the TSE, highlighting the persistence of a statistically significant correlation between investor sentiment and IPO liquidity.