An Empirical Analysis Of The Relationship Between Investor Sentiment And IPO Underpricing

As of December 2018,there are 3584 listed companies in Shenzhen and Shanghai Stock Exchanges,with a total market value of 4349.240 billion yuan.In market transactions,IPO has become one of the indispensable important components,has a pivotal position,is the foundation of the entire trading market.However,because the IPO market is full of a large number of irrational investment and trading behavior,the market frequently bursts the news of "billionaire" and "billionaire"conversion,and because most investors will be blindly follow the trend,blindly self-influence,policy follow the trend,public opinion follow the trend and other psychological state,making this phenomenon continue to intensify.Because these irrational behaviors are flooding the whole market,weakening the resource allocation function of the capital market,and also planting a time bomb for the EPO enterprises.This paper begins with the introduction of the definition and performance of the psychological process of most investors in the process of trading.At the same time,it elaborates the measurement methods of investor sentiment and the reasons for affecting IPO underpricing.At the same time,it also collates and integrates the literature on investor sentiment and EPO underpricing.After that,we decided to use the principal component analysis method to construct the Investor Emotion Compound Index(CICSI).Finally,we used the multiple regression method to verify the hypothesis that the classical theory of IPO underpricing is valid under the influence of investor sentiment.The main purpose of this paper is to summarize and improve the theory of investor sentiment and IPO underpricing by studying the hypothesis of investor sentiment,signaling hypothesis,underwriter reputation hypothesis,transcendental uncertainty hypothesis and trend hypothesis.In the process of empirical analysis,firstly,the data are analyzed by descriptive statistics.Then,by using the Investor Emotion Compound Index(CICSI)as a regulatory variable,multiple regression equations are constructed.Finally,based on the empirical results,multiple regression analysis is carried out.The conclusions are as follows:CICSI is positively related to IPO underpricing.From early 2012 to mid-2014,the value of CICSI was negative and fluctuated slightly.From July 2014 to mid-2015,CICSI rose positively and its amplitude increased,and the underpricing rate of CICSI and IPO basically synchronized,thus verifying the investor sentiment hypothesis.There is no significant relationship between the size of IPO and the underpricing rate of IPO.Although the coefficient of regression equation is positive,the value is small.This shows that there are more speculative activities on the main board of Shanghai Stock Exchange in China,and investors are crazy for profits,thus ignoring the risk that lower issuance volume may be easier to manipulate prices.Therefore,the transcendental hypothesis is not valid.There is still no significant relationship between P/E ratio and IPO underpricing.This shows that there may be such a phenomenon in the market:because investors are susceptible to emotional influence,many weak enterprises,in order to gain the favor of investors,usually overpack themselves with propaganda,or even to rub off news hotspots and policy welfare,thus the underpricing rate of IPO becomes higher.Therefore,the signal transmission hypothesis is not valid.The relationship between underwriter reputation and IPO is not significant,which indicates that there may be such a phenomenon in the market:in order to expand revenue and enhance reputation,underwriters in China will increase the number of enterprises that act as underwriters to help listed companies,and in the process,in order to reduce the standards of qualification audit,there may even be collusion risk.The relationship between industry division and IPO underpricing rate is significant,showing a negative correlation,indicating that investors are not optimistic about the manufacturing industry because of the herd effect.So the trend hypothesis is valid.To sum up,this paper gives the following four suggestions based on the above empirical research results:(1)To guide investors'sentiment correctly and reasonably,the government should increase the supervision of public opinion and news,preferably establish a government propaganda platform to stabilize public opinion,and firmly grasp investors by suppressing malicious public opinion and establishing a stable information platform.Emotions play a role in stabilizing the market and ensuring the healthy development of the stock market.(2)Increase the popular science education of investors,financial knowledge and the ability of investors to control and manage their own emotions.Only by improving the quality of investors fundamentally can China's stock market develop in a benign direction.(3)Strengthen the supervision of the main underwriters and introduce more effective elimination methods to optimize the market structure.We should not only strengthen the supervision and punishment mechanism for securities firms,but also establish a market-oriented exit mechanism for securities firms,so as to optimize the structure of the securities market,accelerate the effective circulation of human resources,and make the market develop better and faster.(4)Accelerating the transformation and upgrading of traditional manufacturing enterprises.Traditional manufacturing companies must speed up the transformation and upgrading,through eliminating lagging capacity,reducing costs,strengthening irnovation,cooperating with industry,University and research,firmly grasping market dynamics,tracking market demand,in order to turn losses into profits,change the image of investors,so as to better and faster development.