Does The Sentiment In Secondary Market Affect The Inquiry In Primary Market

This paper is based on the data from the inquiry institutions in the process of IPO,investigate whether the subject of the primary market——the inquiry institutions and lead underwrier,are affected by the investor sentiment in the secondary market,thus raise the issueprice of the new shares.Then we construct the investor sentiment comprehensive index in China’s stock market.Then construct the weighted average and the skewness coefficient of the price data offered by inquiry institutions based on the data published by WIND form November1,2010.We use these two index to study whether the inquiry institutions’ offering behavior and the underwriter’s pricing behavior are influenced by investor sentiment.The first part of the artical shows that inquiry institutions’ offering is generally high significantly,this may due to the inquiry mechanism is essentially a Dutch auction system.And the difference of inquiry institutions’ offer and the degree of skewness are influenced by the investor sentiment.This shows that in the primary market,inquiry institutions is significantly affected by the emotions from the secondary market.The second part of article show that the lead underwriters’ pricing of new shares is higer than inquiry institutions’ quotation significantly, and is positive correlated with investor sentiment.To sum up, our study shows that investor sentiment can spread to the primary market, have a significant impact on IPO pricing. As the two participaters in the ipo inquiry——inquiry institutions and lead underwriters help push up the issueprice of new shares.The main innovations of this paper are as follows.First,analysis the inquiry data offered by the inquiry institutions, and use of data density distribution of skewness coefficient to measure the degree of inquiry institutions’ rationality, and study the relationship between sentiment and the skewness coefficient. Secondly, based on the analysis of inquiry institutions,we further study the lead underwriters’ behavior of raising the pricing of IPO; in addition, as a supplementary study,we jion the sponsor representatives’ characteristics as control variables, find that the lack of sponsor representatives’ functions in the process of IPO pricing.