The IPO Under-pricing Of GEM And Short-term Price Adjustment

The IPO is short for the Initial Public Offering which means the enterprises issuestocks through the stock exchange in order to get funds from the investors. There arethree anomalies in IPO process-IPO Under-pricing, long-term poor performance andhot market. The IPO Under-pricing described a phenomenon that the first-day closingprice is much higher than the issue price.After half a century’s exploration, the researchers find two causes of IPOUnder-pricing. One is the issue price is low which belongs to the rational explanation.The other is the excessive reaction which belongs to the irrational explanation.By means of a qualitative research and a quantitative research, this paper has twoaims. One is to analyze the main reason of IPO Under-pricing, find the differences inaffecting market and factors among the biomedical industry, new energy and newmaterials industries and other industries. The other is to observe the adjustment inshort-term after the IPO in order to distinguish the Under-pricing in differentindustries.First of all, based on the Asymmetric Information Theory and Behavioral FinanceTheory, the paper studies the rationality of IPO pricing to judge the stocks’Under-pricing in GEM mainly from the primary market or the secondary market.Secondly, the paper indicates the main difference in affecting Under-pricing marketand factors among biomedical industry, new energy new materials industries andother industries. Finally, analyze the stock price trend in60trading days after IPO,find the character of popular industries, and provide the relevant suggestions toinvestors who are about to invest to the newly listed stock in short term.