The Study Of The Periodicity Of IPO Market In China

The anomalies in IPO market attract scholars’research interests for a long time. Surrounding this subject, scholars from western countries carried much work on theoretical and empirical study from different perspectives. Compared to the international markets, China’s stock market is not mature in both the fundamental systems and the circumstance for its late establishment. In addition, the Chinese government always has interference on stock market, which leads to a new interpretation about China’s IPO market.In this paper, we firstly define "IPO market cycles" based on reviewing the relevant theories and empirical evidence, then analyze the dominant position and role the government played by reviewing the changes in institutional arrangements. Upon this point of view, the paper develops a model to analyze the government’s optimal choice when limited by investors’sentiment and other conditions, and it can explicate how governmental actions affect China’s IPO market cycles. After that, a formal empirical study of the IPO market cycles is conducted. Using the monthly data of IPO market from1993to2012, we confirm the existence of China’s IPO market cycles by descriptive statistics and the autoregressive model; subsequently, we testify three hypotheses deduced by the model developed before, and results support the hypotheses.It is not uncommon to find researches on IPO timing in academic field, but the study focuses on the government timing is rare. The innovations of this paper can be summarized as follows:1. Since the IPO process in China needs to go through the administrative examination and approval, losses caused by rent-seeking are under consideration. In fact, there is much rent-seeking space in the procedure, which causes the loss of economic efficiency. Rent-seeking will have an impact on the pricing mechanism, which is consistent with the facts known about the IPO market in China. The existence of rent-seeking stabilizes the investors’sentiment to some extent, and the spread inflects the biases that rent-seeking brings to the pricing mechanism.2. Government timing is testified by Granger casual test, and the empirical results have been analyzed based on the actual situation. The results suggest that government timing can be viewed as one of the interpretations for the China’s IPO market cycles.3. The improvement of measurement on monthly initial return. Many scholars apply the arithmetic to calculate the monthly initial return, which would neglect the differences among the volumes issued by the IPOs. This paper uses the weighted average to calculate the monthly initial return, in this way, the initial return can be measured more accurately in economic sense.