The Research On Initial Public Offering Underpricing Of China’s GEM Based On Behavioral Finance

The problem of financing has always been the primary bottleneck restricting the development of SMEs. China’s GEM has prepared for a decade, which has very important strategic significance to solve this problem. But, the same with all the domestic board, second board markets, there are more severe IPO underpricing on the GEM which starting soon in China. It will inevitably lead large capital accumulating in the primary market to chase risk-free return, and makes irrational allocation of resources. Also it is very easy for higher prices in secondary market to make the volatility of stock market and the risk of higher prices droping increasing. It’s adverse for the healthy development of the GEM. According to behavioral finance, this paper will discuss the irrational behaviors’influence on IPO underpricing.It has very important theoretical and practical value.First, this paper analyzes the basic characteristics of GEM. Then, it provides empirical evidence for the conclusion that the offering prices of the IPO on GEM are close to reasonable, are more effective than the first day’s closing prices in the second market, and the overvaluation in the second market leads to IPO underpricing. Accordingly, the paper makes regression on the irrational behaviors’impact on IPO underpricing. The inventors’irrational behaviors make the price of stock in second market deviate from the value of the company seviously, which leads to higher underpricing level on GEM. Whatever the speed of IPO is fast or slow, the inventor are passionate of the stocks.So, in order to reduce the IPO underpricing of China’s GEM, our country have to improve the inquiry system. It’s necessary to expand the scale of the GEM, which can curb excessive speculation effectively and make a rational valuation of the listed companies. Regulators need to implement strict supervision on inventors and the GEM, which will make the GEM operate normally and the inventors rational when they invent. Which is most important is that the inventors must to self-educate, improve themselves’quality, accumulate investment experience, and formate philosophy of value investing.