Investor Sentiment,Nominal Price Illusion And The Anomalies Of IPOs In China

The anomalies of IPOs are the most striking and long-standing empirical experience in corporate finance,which have been extensively studied.Investor sentiment and government regulation are considered to be the main factors affecting the anomalies of China’s IPOs.However,the annual average difference of initial return of Chinese IPO stocks is too large,and there is a significant negative correlation between initial return and offer price.It is the fact that The Chinese government has suspended markets with much more efficiently pricing for offer price and acquiesced to markets with less efficiently pricing,which makes us fell confused.It is necessary and meaningful to further study the influence mechanism behind these phenomena.In order to investigate the mechanism above,inductive reasoning method was used to construct an analytical framework based on investor sentiment induced demand.In order to more comprehensive understanding and accurately reflect investor sentiment in the market;the correlation analysis was used to discuss the domestic stock market,the irrational of institutional investors;the inductive reasoning method again was adopted to analyzed the defects in the past research and optimize the proxies of investor sentiment;in order to reflect well the investor the subconscious mind,the proxies of subconscious were selected and the variable of nominal price illusion was defined;at last,the method of principal component analysis is used to compose the investor sentiment index considering the investors subconscious.Further,a theoretical model was build to analyze the impact of nominal price illusion on China’s IPOs’anomalies,and empirical tests of the conclusion were done.The main conclusions of this paper are as follows.First,we find that there is a positive correlation between the widely used proxy variable of investor sentiment and the shock of institutional investors’ stock sentiment demand.Institutional investor sentiment may be responsible for mispricing caused by sentiment,which is inconsistent with the assumption of the traditional investor sentiment.On this basis,this paper selects the dividend premium ratio(PDND),AH share premium(AH),turnover ratio(TURN),relative strength index(Rsi)and deviation ratio(Bias)to make a traditional investor sentiment index,so as to take institutional investor sentiment more into account.Second,on the basis of subconscious theory and related literatures,the five variables of penny stock fantasies(pLcp),low value(pLtv),good volatility "GDV,bad volatility(BDV)and the max return of Shanghai composite index in every month(MMR)and so on were selected to reflect the investor subconscious,and used to composed investor sentiment composite index.The subconscious investor sentiment index composed in this paper can reflect the investor sentiment in the market more comprehensively and explain the fluctuation of Chinese stock market more reasonably than before.Thirdly,by constructing theoretical model analysis and empirical model test,this paper finds that both nominal price illusion and investor sentiment have a significant positive impact on IPO first-day returns and long-term IPO performance,and play a supportive role in IPO stock price when the limitation period expired.These conclusions reflect fully the influence mechanism of investor sentiment on China’s IPO market.In addition,the conclusions of this paper have strong practical significance for the development of China’s IPO market,and provide theoretical basis and empirical experience for the regulatory authorities to formulate effective regulatory measures.