An Investigation Of Underpricing In Chinese IPOs

Many foreign researches show that IPO excess returns are a kind of universal phenomenon in stock markets all around the world. The excess returns of the new-issued stocks are very high both in stock markets of developed countries and developing countries. This phenomenon also exists in the Chinese stock market, and goes even further, which is called "the miracle of IPO" or "the bubble boom of IPO". However, there are maybe some special characteristics in our stock market such that the western theories probably cannot be applied well in our county. So it is very important for us to study the IPO excess returns of our stock market individually. This paper studies the IPO excess returns based on the Chinese stock market to find out the special and unique factors that influencing IPO excess returns in the Chinese stock market.To achieve its goal, this thesis applies both quantitative analysis and qualitative analysis. Firstly, the thesis reviews related literature on the IPO under-pricing, summarizes the recent empirical results in China and the other countries. Secondly, based on a summary review of other scholar's results and the author's comment upon the limitation of existing research, this thesis classifies the sample of Chinese stock data, analyzes the under-pricing factors from different point of views, and preliminarily shows the degree of these factors that affect the under-pricing to find out the under-pricing related factors. Thirdly, using the same sample of stock data to set up a mathematic model, the thesis applies empirical method to study the under-pricing phenomenon in Chinese stock market. The thesis finds out that the research and explanation of western scholars is not very helpful to understand the under-pricing phenomenon in China. Instead it concludes that some of the special and unique factors affect the IPO under-pricing in China. Afterwards, according to the characteristics of our stock market sample and structure of the main participators in Chinese IPO market, the thesis shows that government control and non-tradable shares' policy restrict the development of Chinese IPO market. Finally, the thesis gives its constructive suggestions that enhance the efficiency of IPO pricing in China especially for the historic period of reform of non-tradable.