The Empirical Analysis Of IPO Abnormal Return Changes And Its Constituent Factors Changes

China’s IPO issuance system is not perfect from the beginning, which leads to aseries of problems in China’s IPO market. One of the main problems is the super highunderpricing rate on the day listed and it hinders the effectiveness of resourcesallocation by stock market. And the IPO issuance system reform is constantly.In2009June, CSRC (China Securities Regulatory Commission) issued the" Guidelines tofurther Reform and Improve Offering Mechanism" to lead the first phase of IPO,promote its distribution mechanism and make its price more marketable. In2010October, CSRC issued "Guidance on deepening the reform of IPO system", openedthe second phase of the reform. In2012April, CSRC issued "Guidance on furtherdeepening the reform of IPO system" representing the reform of third stage. In2012October, the IPO has been suspended. A new round of reform is seemingly inevitable.How the market going to respond? What changes will be to IPO underpricing? Thesemeasurement of the effect of the reform will make a guidance for the next step ofreform.First, this paper reviews the theory of IPO underpricing, IPO pricing andlong-term performance of newly listed shares, and then the evolution of China’s IPOissue system from three aspects: pricing, issuance and distribution system In theempirical part, this paper selects and analyses three samples based on reform timeinterval division, and decomposes the IPO underpricing rate into primary market rateof return and secondary market rate of return. Three samples were then conductedmultiple regression analysis to identify each major factor that constitutes IPOunderpricing, including its regression coefficients and statistical significance. Thesecond part of the empirical analysis calculated the cumulative abnormal return (CAR)of each sample in12months to analyze and determine the return of IPOs after listed,which measure the efficience of IPO pricing. Finally, if the total underpricing ratedecreased significantly, and is based on slightly positive primary market yields on thebasis that the secondary market yields also decreased, indicating that the reform hasobtained a good effect.The research results show that, on the one hand, with the promotion of thereform, IPO pricing has achieved marketization, the primary market pricing of newshares as a whole has no significant overestimation or underestimation, overall pricingefficiency has increased, but some stocks were still expensively issued, and the pricing mechanism still need to be improved.On the other hand, after the secondphase of reform, the IPO underpricing rate decreased significantly, but it was manyIPOs trading price fell below the issue price on the first listed day that drived downthe overall underpricing rate. In addition, speculation in IPOs in the secondary marketwas still the major reason of underpricing. The reasons for the actions of irrationalspeculation in the secondary market were that the inadequate IPOs supply, thedeficiencies of trading mechanism, the lack of professional investors and so on.Insummary, although China’s IPO reform has made a great progress, but it still has along way to go in improving the distribution mechanism for increasing the supply ofnew shares and tighten penalties for violations as well as educating the investors.