| The so-called "three mysteries of IPO" based on new share pricing efficiency have been important issues for the scholars in the field of modern finance. These three mysteries are:IPO underpricing, witch is the phenomenon that the first day’s closing prices in the secondary market systematically higher than the issue prices; long-term weakness in the IPO, is the phenomenon that after the new shares have completed the IPO, the trend of the stock prices in a longer period are weak compared to the overall market trend; hot market, is the phenomenon that a large number of companies engage in the Activity of IPO simultaneously, while few companies doing IPO in some other period.Compared with most of the countries and regions in the world, the three mysteries of IPO in China’s capital market have different characteristics, which makes the the IPO behavior in the Chinese stock market seems more difficult to explain. China’s stock market is an emerging market, it is born out of a planned economy, and is currently in the the process of the transition to a market economy. In this process, some of the historical and social factors make China’s stock market different from mature markets abroad and even different from some of the common characteristics of other emerging markets, such as: market is under high degree of government control; the market is fulfilled with irrational investors; and many other incredible phenomenon of so-called Chinese characteristics. The main object of this article is to explain IPO underpricing in China’s stock market, the phenomenon that the new shares’first day closing price after IPO systematic higher than the primary market IPO Pricing. In addition, this article also select some of the GEM sample to do empirical study of the long-term weakness, with the hope to contribute to the study of the IPO issues. For the hot market phenomenon, due to that China’s IPO activity have not realized being fully market-oriented, but still has a strong atmosphere of planned economy, we think there is not a true hot market phenomenon in china.In order to improve the efficiency of pricing of shares, the chinese regulatory authorities has carried out many attempts to lower the degree of IPO under prcing:trying new regulatory approaches for IPO activity, and using new mechanisms for share pricing. From the year of2005, IPO activity started to use accumulated bidding inquiry pricing method, in the next few years, regulatory authorities made a significant relax in the IPO approval, the number of IPOs and the amount of financing for China’s stock market continued to be highest in the world for several years. Will these attempts really be able to fundamentally eliminate the inefficiencies in China’s IPO pricing activity? Will these attempts be able to help reduce degree of the IPO underpricing? This paper will discuss these issues and try to make explanations.In addition, recent years, a lot of events also have happened in China’s capital market that may affect the level of IPO underpricing, the article also attempts to bring these events to our IPO underpricing level analysis of the impact. For example, in2009China’s GEM market was established, its listed companies are relatively unique due to several regulatory conditions, in particular, the conditions for listing have many different standard, so in some ways different from the motherboard, making the the GEM IPO underpricing phenomenon and its explanation may differ from the motherboard market. Another example, the the number and amount of financing of IPO in China’s stock market was significantly enhanced in recent years. In addition, the stock market expansion speed is too fast, some serious Issue, like "three high" phenomenon appear, the secondary market remains in the doldrums, the IPO break has become the normal, and so on.Based on these, this article have selected1121IPO appeared in Shanghai and Shenzhen exchanges from2006to2012as sample, using empirical methods to do comprehensive and systematic analysis in order to find out the effect the new pricing mechanism have on the Chinese stock market’s IPO underpricing.This paper can be divided into seven sections:Chapter Ⅰ, Introduction. First introduce China’s stock market IPO research background, explain why do we do this reseach, the theoretical and practical significance of the Chinese IPO mysteries research. Then, the goal of this study, general article content, research ideas and essay structure are given. It also describes the main methods used in the research and the innovation of the paper.The second chapter, the literature review. Classify, combine and summarize the researches made on the IPO pricing efficiency and distribution mechanisms. Various of theories are made by foreign scholars to explain the phenomenon of IPO underpricing, and we also introduced domestic scholars’researches done in recent years on China’s IPO underpricing perspective.The third chapter, overview the IPO pricing theory and the issue of IPO mechanisms. Introduce the outline of IPO pricing theory, and some of the world’s major countries and regions’typical IPO issuance system, the evolution of the description and analysis of the system regarding the issue of China’s stock market and IPO pricing system.Chapter IV, analyze the IPO underpricing in China and SFA decomposition of IPO underpricing. First, Statistical analysis was done on each segment of the stock market’s average level of IPO underpricing in each period, after the decomposition of the source of the IPO underpricing, the issue of IPO underpricing is divided into two parts,one part derived from primary market inefficiency, and the other part derived from the secondary market. This chapter use stochastic frontier approach to study the pricing efficiency of primary market and the main factors that affect the primary market pricing, and we will discuss pricing efficiency of the secondary market in the later chapters. We selected samples in the period from2006to2012, and use the stochastic frontier approach to analyze the samples, the empirical results obtained can be used to compare with previous results obtained by study on the samples selected before the year of2005done by other researcher. In this chapter, the empirical results obtained show that the issue of pricing behavior in Chinese primary market in our study period (2006-2012), has been different from the previous period (before2006), deliberately suppressed pricing of new shares is start to be found in a some specific period and specific section. If the Chinese capital market is just like the results of previous studies, that means there will be no systemic underestimated new shares on the primary market, that give the point that the abnormally high IPO underpricing in China is mainly derived from the secondary market mispricing. While in this paper we have found the existence of pricing inefficiencies in primary market, we still believe that the inefficiency on the secondary market pricing is the main source of IPO underpricing, and pricing inefficiency on primary market also have impact on the entire level of underpricing, as we have found that the pricing inefficiency in small plates is significantly above that in the Main Board and GEM. Over time, as the continuous development goes on in China’s stock market, the level of underpricing of new shares in the different periods of China’s capital market are constantly changing. This chapter attempts to explain the empirical results, and link it to various market conditions in deferent period and regulatory policy changes.Chapter5, empirical research on the Chinese stock market IPO underpricing factors. In last chapter, we use the stochastic frontier approach to study the sources of IPO underpricing, and alse do the decomposition of it, by stochastic frontier approach we can find out if there is any part of the mispricing derived from primary market.In this chapter we will find out what factors will affect the pricing inefficiency in the secondary market. investors irrational assumptions is adopted, and investor’s sentiment indicators are used to build a multiple regression equation to study IPO underpricing comes from the part of the secondary market. We use irrational explanation framework that predecessors gave out, try to describe the relationship between investor sentiment and Chinese High IPO Underpricing. Sentiment indicators are used along with traditional financial indicators in the empirical research to explain China’s IPO underpricing. Then, we use this empirical results to deduce the behavior characteristics of the investor involved in the first day trading of the new shares on the secondary market and use the analysis of the the multiple sample group of the different periods and of the different sections to show the reason for players’ different behavior.Chapter VI, the IPO underpricing of different plates in Chinese stock market. in the fourth chapter’s study, we found that the sample group from2009to2012showing some information Unlike previous research results, which is of course due to the combined effect of a variety of factors. Among these factors, the establishment of GEM is surely a significant impact on the statistical results of IPO activity. This chapter then use the stochastic frontier model for China’s different plates’primary market pricing efficiency and its influencing factors were studied using a multiple regression model containing sentiment indicators to study the degree of underpricing and investor sentiment of each section as well as other major Factors relations. Due to the particularity of the GEM’s position in China’s capital market, this chapter first discuss the characteristics of the GEM, the Chinese GEM existing anomalies were described. In addition, this chapter also analyze holding period after the GEM IPO:If the the irrational theory can explain the abnormally high IPO underpricing, then a potential point is that initial excess return will surely cause the shares later return to their real value, exhibit the phenomenon of long-term weakness.Chapter VII, the conclusion and policy recommendations. This chapter explored the current Chinese stock market IPO high underpricing environment. And, on this basis, made a number of policy recommendations on how to improve the efficiency of China’s stock market IPO pricing. |
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