Comparing The Performance Of IPOs And The Index On The Basis Of Mean-variance Model And Stochastic Dominance

After the IPO reform in2009the first day return of IPO present gradual declineand the price of IPOs listing on the SMEs board fell below the initial offering price.These phenomena make new shares not the optimal investment option of Chinesestock market investors any more. The decline of the initial return illustrated that theIPO system is becoming mature gradually and the the IPO market becomes moreefficient in this context. For all these reasons domestic investors can not merelypursue speculation and they should rationally assess the corresponding risk of theIPOs. Since the investment value of the IPO assets can be measured by comparingwith the market’s performance, we can chose the mean variance model andstochastic dominance theory to assess the value of IPO investment assets. In thisstudy the stock market index is selected as the representatives of mature marketperformance. We checked the relationship between the market index and the IPOassets after the IPO reform in2009.The superiority in decision analysis of Stochastic Dominance approach chosenin this paper comes from two aspects. The one is its intuitive in theory. If we haveadequate sample, the cumulative distribution function of the entire income can becharacterized more thorough, which can take into account higher moments of theincome distribution. And it doesn’t require the function normally distributed; Theother one is the relaxed assumption of the method. Stochastic Dominance theory putlittle restriction on utility function. So that researchers is still able to predict theirinvestment decisions in the absence of complete information of the investorappetite.From the empirical results by stochastic dominance analysis in the researchbackground, we can at least get the following four conclusions. Firstly theinvestment in new shares subscription is inferior to the secondary market transactionof new shares. Secondly the performance of IPOs listed on the Main Market is betterthan IPOs on GEM. Thirdly the investment value of China’s IPO market is inferiorto the investment value of the index. And fourthly China’s IPO market is imbalanced...