An Investigation Of IPO Underwriters' Stabilization Based On Analysis Of Return Distribution

The high initial rate of return of new issues is always a hot issue in the IPO field, all the researchers tried to explain this abnormal phenomenon using the low offer price (that is IPO underpricing) theory from 1980s to the early in the 1990s. After Ruud has pointed out underwriters' stabilization, many scholars began to research using the theory of high first-day market price after the public offer. The qualification approval system of stock issuance in China brings underwriters more and more legal and market risk, and there is no specific regulation on underwriters' stabilization in related security rules of law in China, which makes the behavior possible. In addition, underwriters are capable of supporting new issues because of the small sale of circulating equity in China's stock market. From practical aspect, investors' acquaintance of underwriters' price support is advantageous to the reduction of their investment risk.As a result, the paper carryies on a deep discussion on underwriters' price support in China based on the summarization and reference of foreign research findings. In the first place, this paper simply describes the concrete behavior and motives of stabilization, the relationship between underpricing and it, also makes a study of underwriters' stabilization on IPO in the domestic and international stock market and describes the detailed test methods of stabilization. Secondly, based on the data of security market of China, an empirical research on underwriters' stabilization with the reference of the test method based on the skewed distribution of the initial returns following the public offer is carried on. The paper pursues the censored regression empirical study in the domestic stock market for the first time and proposes a new thinking of acquiring the value of underwriters' stabilization return through the censored regression sensitivity analysis. Later on, using the Probit regression model, the writer tests the applicability of the research method referred to in the stock market of China and the validity of stabilization return value for China's underwriters acquired by the use of the new thinking for the first time. Finally, on the basis of analysis and discussion of the result of empirical research, the writer attempts to offer some countermeasures and suggestions to supervision authorities and new stock issue participants.The paper finds that the stabilization period for China's underwriters is longer, and the behavior in China is irregular; Underwriters' price support was relative regular in 2002 and the stabilization period in that year is about 25 trading days; In the stockmarket of China, underwriters is most likely to support newly issued stock whose initial return on the first trading day after the public offer is below or equal to 0.334, and the stabilization return is higher on other trading days, that is around 0.4175.