Analyses On IPO Underpricing Of Stock Market Based On Behavioral Finance

There exists widespread high IPO underpricing phenomenon on the issuing of new shares after the establishment of Chinese stock market in1990. Analysing IPO underpricing of stock market based on behavioral finance could be beneficial to better explain the abnonnal behavior of stock market and help investors to make the right investment decisions.By reviewing the behavioral finance theories which are related to the IPO underpricing and analysing the abnonnal behavior of stock market, this paper divides China’s A share market into three sections, including Shenzhen A share market, the growth enterprise market and Shanghai A share market, and makes an empirical analysis from the perspective of information asymmetry, investors’behavior, business growth and market-heat to study the effect degree that behavioral finance factors act on Chinese stock market IPO underpricing rate.This study finds that Shenzhen A share market and Shanghai A share market are mainly influenced by investors’behavior, among which the HSLV is the most important factor influencing the IPO underpricing rate. By contrast, the growth enterprise market is greatly affected by market-heat variables. The market return rate of new shares listed on the first day was likely to have most impact on the IPO underpricing rate. Thus, it could be seen that the whole atmosphere of the growth enterprise market led the chinext stock price movements. Although the growth enterprise market and main board are both affected by the investor behavior, the specific factors was different. The growth enterprise market experiences a higher growth rate but is faced with greater risk at the same time. Based on the conclusions above, it is suggested that the relevant institutions should take actions to strengthen the supervision and perfect market system.