Research Of The GEM High Initial Yield Phenomenon Based On Behavior Finance Perspective

In recent years, along with the opening of Chinese Growth Enterprise(GEM), many market researchers and scholars pay attention to its IPO high initial yield phenomenon. While considering the specialization of foreign IPO underpricing theory’s assumptions and the difference of the system, it is not persuasive to directly apply the theory to Chinese GEM. Therefore, it is wise to study the IPO high initial yield phenomenon based on Chinese GEM and its IPO system. What’s more, there is great practical significance for China to regulate the behavior of market players, stable investor sentiment and develop their rational investment philosophy; improve its operating environment and keep GEM developing sustainably and stably in the future.This paper summarizes the relevant literature on IPO high initial yield. Combining with characteristics of Chinese GEM and its investors behavioral factors, then it respectively researches characteristics and reasons of Chinese GEM for IPO high initial yield phenomenon from theoretical and empirical ways based on noise trading, investor sentiment and market sentiment hypothesis. On the whole, this paper consists of four main parts:First of all, it introduces three important theories of behavioral finance:investor sentiment, noise trading, market sentiment hypothesis. Based on the intrinsic value of new shares, then this chapter respectively decomposes IPO initial yield from the primary and secondary market. Assuming IPO pricing of the primary market is valid, it further decomposes irrational components of IPO initial yield from investor sentiment, noise trading, market sentiment view and infers the theoretical exploded chart.Second, combining with Chinese GEM and its IPO system, this chapter focuses on IPO high initial yield phenomenon statistical description. It found that the domestic GEM initial yield phenomenon appears a certain interval. At the beginning the initial yield is high, reaching more than80%. Subsequently, the overall annual average initial yield decline, roughly30%to40%range. And the break phenomenon of new shares, further highlights the special nature of Chinese GEM high initial yield phenomenon.Again, according to characteristics of Chinese GEM IPO initial yield and theoretical analysis, this chapter respectively tests its reasons in empirical ways from the primary market and secondary market. Selecting281IPOs listed companies in the period from October30,2009to December29,2012for analysis samples, first it adopts principal component analysis to refine fundamental variables of new shares, then based on the intrinsic value, and analyze pricing efficiency of the primary market with the stochastic frontier model. On this basis, from the secondary market, combining with noise trading, investor sentiment and market sentiment hypothesis to research irrational factors for the GEM high initial yield. The empirical results show that the mean of the primary market of the GEM IPO pricing efficiency is99.47%. So it’s effective pricing, there is no systematic low pricing. This means that Chinese GEM initial yield is essentially a false underpricing phenomenon. Further analysis indicated the initial yield and the market sentiment, noise trading and investor sentiment factor are highly correlated. IPO first-day turnover, amplitude ratio and small plates market index with the initial yield are positively correlated. The success rate and the initial rate is a negative correlation.Finally, it makes some policy suggestions based on the above. By further perfecting IPO information disclosure system and setting up the noise filtering mechanism; regulating the behavior of individual investors and cultivating the rational investment concept; optimizing the IPO first-day trading mechanism and subscription system; in order to prevent new shares price excessive volatility on listing date and gradually ease the GEM high initial yield phenomenon, promote GEM developing sustainably and healthily.