IPO's Time-varying Systemic Risk And Long-term Excess Returns

Some foreign scholars have studied the returns on IPOs and found the existence of short-run abnormal returns in combination with long-run underperformance. One explanation is that the systemic risks decline after the start of public trading. Empirically, based on capital asset pricing model (CAPM), many foreign scholars obtained this result. According to Ross' arbitrage pricing theory, the systemic risks of shares should be measured by numbers of risk measures. Capital asset pricing model (CAPM) have single risk factor and can only estimate market risk, such estimate should be incomplete.Domestic study on the change of IPOs' systemic risks in time series is extremely limited. Based on the Capital Asset Pricing Model (CAPM) and Fama-French three factors model, this thesis uses Kalman filter to study the IPOs'systemic risks and abnormal returns during the 2nd month to 36th month after IPO in the period from the June 1997 to May 2007 in Chinese stock market and based on the abnormal return to measure the long-term performance of IPOs. The research show that based on the capital asset pricing model (CAPM), the average value of beta gradually increase to 1 from the lower level. Based on Fama-French three factors model, the beta value slightly less than 1,and there is no obvious upward or downward trend; the average value of size factor's risk are positive and there is a significant upward trend;the average value of book-to-market factor's risk is negative and there is a downward trend, but not significantly different from 0. The long-term risk-adjusted cumulative average abnormal return is greater than 0 and significant. Grouped by industries, size and other characteristics, the control group's systemic risks show the evolution of different characteristics. Information asymmetry is an important feature of capital markets. This thesis focuses on using the information asymmetry to explain the change of IPOs'systemic risks. With the increase IPOs' public trading time investors know more of IPOs and the degree of information asymmetry reduce, so IPOs' specific risks decline and IPOs' response to changes in macroeconomic factors become more sensitive. The last reuslt is the systemic risks of IPOs rise. Different portfolios group by industries, size and other characteristics have different degree of information asymmetry and therefore the systemic risks also show the evolution of different characteristics.