An Empirical Investigation Of The Underpricing Of Initial Public Offerings

Initial public offering (IPO) underpricing—a large positive gain of a new issue immediately after flotation—is a recurring phenomenon in many markets. A number of theories of IPO underpricing have been put forward since 1970s and tested against the data of various stock markets. In recent years attention has been focused on china because Chinese IPO enjoy the world's highest initial returns.This paper reviews the theory of IPO underpricing of the domestic and foreign experts, and analysis the various theoretical hypotheses background of the times, the basic ideas and the main empirical analysis of data. This article analyzes the IPO underpricing from the traditional finance and behavioral finance point of view. As a more profound theoretical basis, the traditional IPO underpricing of Finance analysis is by far the most academic underpricing accepted theory, among which the impact of asymmetric information theory is the most widely used. It is mainly based on capital market participation:issuers, underwriters and investors, information asymmetry between the premise for the theory put forward for the issuers and underwriters, issuers and investors, investors and investors and between underwriters and investors, the information is not symmetric theory of IPO underpricing. In addition, the traditional financial also believe that even the information symmetry, issuers, underwriters and investors have the same information, because of the legal issue of cost and market transaction costs the phenomenon of IPO underpricing still arise in the market. So there is the theory based on symmetric information hypothesis IPO underpricing.In addition, with the continuous development of behavioral finance recently, more and more scholars began to use behavioral finance theory to explain the phenomenon of IPO underpricing. They mainly use the psychology and social psychology relay on secondary market investors to analyze the emotional approach, that people in the uncertain circumstances of the cognitive processes and behavioral bias, and reflected in the capital market, mainly for noise trading, overreaction inadequate response and self-attribution. This article proposes the limitations of hypotheses of foreign applications in China's stock market and perfected yet to be, on the advantages and disadvantages of two methods and the phenomenon of revelation underpricing stock market, combined with the domestic status of empirical research scholars.In addition, this paper reviews the evolution of the regulatory system, distribution system and pricing system of China's A share market. Analysis of the changes from the approval system to the approval system and then to recommend system, as well as A-share market present the inevitable trend of the registration system. Distribution system from the private placement, for sale on online subscription application form to the present issue and secondary market pricing of placing a combination of distribution methods, it also reflects the changes between the development of China's capital market in general context. The pricing system has experienced a strong sense from the administration's on sale at face value, strict administration of the price earnings ratio gradually to the control half the market price earnings ratio has now accumulated bidding for a market-based pricing mechanism inquiry changes.This paper collected all listed shares information in Shanghai and Shenzhen stock exchanges since December 1990 when the founding of the Shanghai Stock Exchange to April 2010,and empirically analysis underpricing rate based on the four sub-samples divided by the evolution of pricing system.By the end, the main factors of China's stock and the IPO of A-share market underpricing evolution characteristics of the phenomenon,and the relevant policy recommendations are put forward.