| In theory, stock price should be fluctuant around its intrinsic value. And intrinsicvalue depends on the performance of listed companies. For the whole stock market,the trends of macroeconomic could reflect the profitability of most listed companies,thus will feedback to the secondary stock market. In China, nearly20years of annualgrowth rate of GDP exceeded7%. But the stock market showed us short bull withlong bear, which is quite different from the traditional view, stock market has beenregarded as the barometer of national economic. Therefore, many scholars tried tofind the reason for stock market and macroeconomic deviating. In this process, as theprimary task on listing of companies, the relationship between IPOs and stock markethas become a popular subject, and drew more and more scholars’ attention.Whether IPOs could determine up and down of the stock market in China? Tosuch an issue, scholars answered the questions based on different angles. Theoretically,if the market is effective, equity issuing pricing should be based on intrinsic valuestrictly. The phenomenon of new stocks high underpricing wouldn’t exist either. Thenthe stock tendency would be completed determined by the company’s own operatingconditions in the future. And all of listed companies’ operations will not only reflectmacroeconomic situation, but also feedback information to the secondary stockmarket. Based on such precondition, the stock market and national economy show ussignificant positive correlation. IPOs couldn’t determine ups and downs of stockmarket. But in reality, market always be lack of effectiveness, investors are notcompletely rational. Then IPOs may be likely to cause adverse effects on the stockmarket. Based on considerations of reality, this paper will make a systematic analysison the correlation between IPOs and the stock market.This paper is divided into five parts. The first part is a brief introduction,including the significance of selected topic in this paper, the research content, innovations and defects of this article. This part reviews the reaction of stock marketduring previous IPOs pause and restart event in our country, then lead to thediscussion between IPOs and the secondary stock market.The second part is literature review. This chapter introduces three abnormalphenomena in IPOs firstly, including IPO underpricing, long-term underperformanceand hot selling market. Underpricing refers to the initial public offering pricing isalways higher than issue pricing. It reflects investors’ sentiment to a large extent. IPOslong-term underperformance means a new share always shows generally poorperformance in3-5years after listing. The mainstream view told us the reason for thisperformance is that investors’ excessive speculation and stock price outdistancesintrinsic value, while long-term underperformance reveals the process of regression tointrinsic value. IPO hot issue market means that companies and underwriters alwaystake advantage of investor sentiment firstly, then float stocks. This behavior could notonly reduce the risk of issuing, but also take the best price for sale. Next, this paperexpounds the research on relationship between IPOs and stock market by domesticand foreign scholars. The current main point focus on how blood effect caused bynew shares and market expansion to influence the market equilibrium, concluded thatIPOs would cause short-term decline in the stock market.The third part is theoretical analysis. This chapter analyses the effects of thediversion of capital market funds when IPOs, stocks supply and demand balance,investors behavior and new shares long-term performance. First of all, new shareissue causes the diversion of funds, while the market expansion increases the supplyof stock. It causes the market equilibrium price drop. So in short term, IPOs had anegative impact on stock market. But with the parts of funds which didn’t purchasesuccessfully recycling, enterprise management status and the changes ofmacroeconomic situation, we can’t draw a conclusion on IPOs long-term effect. Thischapter analyses the impact of investors behavior during IPOs on stock market,including investors’ expectation about the new shares suppress market and low levelof market risk characteristics exacerbated diversion of funds. At last, this chapterdiscusses the hazards on new shares long-term underperformance. In fact, the three abnormal phenomena and the subject of this paper have inner connection. Combinedwith China’s actual situation, speculators’ blindly pursuit not only exacerbated thediversion of funds, but also causes high underpricing. If a large number of enterprisestocks emerge long-term underperformance is confirmed, then the IPOs wouldencumber stock market for a long time inevitably.The fourth part is empirical test. In order to test the correlation between IPO andsecondary market, this paper select Shanghai composite index to measure marketyields volatility levels. At the same time, starting with the reform of non-tradableshares in China, we choose186listed companies’ IPO data which listed in Shanghaifrom2006to2014. Through descriptive statistics and VAR model, this paperconcluded that: diversion of funds caused by IPOs has adverse effects on theShanghai composite index; IPO underpricing will influence stock market through theinfluence of investors’ sentiment, and this effect is negative in a short term; iflarge-capitalization stocks go long-term underperformance, these stocks are verylikely drag down stock market in a long time.The fifth part is the conclusion and policy suggestions. In this chapter, accordingto the conclusion of theoretical analysis and empirical test, combined with the actualsituation of China’s stock market, we put forward five suggestions: Includingregulating IPOs timing and rhythm, adhering to market-oriented pricing mechanism;Attach importance to inhibiting excessive speculation; Promote the reform ofregistration system; The rational investment advices for investors；Strengthen thesupervision of listed companies and establish complete delisting mechanism. |
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