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The Research on the High Returns of IPO in China

Author: LiZhiYuan
Tutor: ZhengYi
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Over yield of the first day of IPO Behavioral finance theory Prospect Theory Anchoring and adjustment deviation Investor sentiment
CLC: F832.51
Type: Master's thesis
Year: 2011
Downloads: 60
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Abstract

This paper is based on the theory of behavioral finance our inquiry system IPO first day of excess yield phenomenon, behavioral finance framework, an issuer in the secondary market, underwriting agencies and investors as the main, Inquiry system explain the phenomenon of the domestic stock market IPO first day of excess yield. In the inquiry system by introducing issuers, underwriters and investors prone to deviant behavior theory, then, respectively, from each of the main point of departure, combined with our market data for the empirical test, found that the following conclusions: the issuer in the IPO pricing process expected issue price is lower than the equilibrium price of the secondary market, but they feel its issue listed income is higher than this part of the loss, and treated together account the gains and losses, the issuer is able to accept the pricing of underwriting agencies; underwriting agency in The determining the bookbuilding range of inquiry, did not produce the anchoring and adjustment effects, and the the underwriting agency's pricing is conservative: It may be due to their fear the IPO effect is not ideal, and determine the cause of the issue price of the institutional constraints in determining the price range too conservative when, eventually most of the IPO price determined in the bookbuilding range ceiling to promote the generation of the first day of an IPO excess yield phenomenon; investors overconfidence and other factors make excessive pursuit of new shares, high investment by mood elevation IPO first day closing price, and a direct impact on the first day of IPO yield investor sentiment and IPO first-day yield a positive correlation, China's stock market on the first day of IPO excess yield of investor sentiment factor. IPO the first day of high-yield is not only a unique phenomenon of the domestic stock market, while abroad, there has been in our market compared with the yield of foreign markets, the first day of listing, the problem is more significant, this way to attract the many funds sought new shares, a loss of efficiency in the use of funds, is not conducive to the healthy development of the stock market, so this article attempts to comb, learning scholars have put forward views and confirmed on the first day of IPO higher yields phenomenon exists conclusion of China's market for the purposes of Inquiry system, help to identify and understand the issuers, underwriters and investors in China's stock market behavior deviation, initial public offering of the relevant system can evaluate Inquiry system, improve stock some inefficiencies in the market, immature, hoping to be able to make appropriate recommendations to improve the current situation through research. Behavioral finance theory review found that behavioral finance has not yet formed a complete theoretical system, the theory put forward by different scholars are more dispersed, the main achievements: prospect theory, overconfidence, overreaction, and an inadequate response to the theory, the behavior of asset pricing model, behavioral portfolio theory. With the corresponding characteristics of the various actors in the PO process combining inferred starting pedestrian theoretical basis for underwriting agencies and investors may apply: prospect theory and mental accounting theory, anchoring and adjustment effect, overconfidence and representativeness deviation . Specifically, the issuer of the IPO transaction price is more than the willingness to turn to the stock price in this part of the income, and did not raise the issue price to the partial loss of the first day closing price by the mental accounting theory to analyze and deal with both revenue and The loss, in the end is to merge the two accounts or separately by the issuer to make decisions depending on the specific situation. For issuers, prospect theory and mental accounting theory will jointly decide the issue of how to treat the wealth changes that may arise after the issue price is determined by prospect theory and mental accounting theory to explain the behavior of decision-making of the issuer. Underwriting agencies in the current inquiry system to determine the issue price was first address investors to promote and preliminary inquiry, to collect information related to the demand for subscription of new shares, with the issuer based on the results of the initial inquiry and comprehensive consideration of the needs of issuers to raise funds situation, the industry in which, comparable company valuations and market conditions, the issue of the price range, and finally determine the net Placing objects accumulated bidding inquiry accumulated bidding inquiry ends determine the issue price, underwriting agency is participating investors Inquiry and the gradual adjustment of new shares price. Anchoring and adjustment effects in behavioral finance the anchor point form and reflected in the behavior of the underwriting agency the anchor value adjusted in two stages, is on the one hand how the formation of the bookbuilding range, on the other hand how to finalize the issue price. Investors often too much faith in the correctness of their own judgment, to overestimate their chances of success, and success is attributed to their ability, and underestimate the luck in the effect of the play, and so will lead to overconfidence. Overconfidence investors will place undue reliance on the information collected and to contempt some public information and overconfidence allows investors to filter all kinds of information, specifically focus on those who can enhance their self-confidence, while ignoring those of their confidence adverse information. Other investors in uncertain circumstances concerned with one thing and another thing similar to infer the first thing and the second a similar things at. Investors assume that future models will be similar to the past and seek a familiar pattern to make judgments, and do not consider the causes of this pattern or repeat probability, investors often have this representation of the deviation. So two kinds of deviation easily lead to the generation of noise traders, noise traders make decisions based on some signal, these signals are in fact real intrinsic value, only those investors in the signal information processing, the output process the deviation of the signal itself is wrong. Therefore there are often investors sought after high-priced stocks in the market, the first day of the listing of the new shares it is easy to become the object of pursuit. In the empirical part of the article: the issuer, since January 1, 2005 of the Inquiry system to the end of 2010, 729 companies completed an initial public offering as a sample, try to use the prospect theory and mental accounting theory to explain our IPO the underpricing phenomenon; underwriting agencies, the initial public issue of new shares to the beginning of 2005 to the end of 2008 as a sample removed after 2006 in the small plates listed stocks, samples of a total of 79 stocks, underwriting agencies to test whether the inquiry stage anchoring and adjustment effects, and tried to explain the impact of the the underwriting agency acts on IPO underpricing; investors to select the initial public offering of stock in 2005-2010 as the sample to remove part of the missing data or other reasons affect stock , a total of 708 stocks, investor sentiment variable instead IPO first day turnover and subscription of new shares in the success rate of the test of investor sentiment and IPO first day of excess yield. The final conclusion has been placed at the beginning of this section. According to the conclusions, recommendations for each of the main body involved in the IPO process, as well as the entire stock market, such as small and medium investors in the IPO IPO has nothing to do with the true value of the signal and to take the appropriate decision-making is the first day of IPO excess yield important factor in the small and medium investors irrational blind pursuit of new shares or other stock, resulting in increased stock market volatility risk, which greatly affected the healthy development of the stock market. Small investors should learn to reason, to learn how to determine the true stock at reasonable prices, to distinguish which has nothing to do with the value of the noise, and what information affecting the value of the stock to the profit growth of listed companies share, while growing up in their own investment philosophy caused gains. There are other main recommendations would not be in this exhaustive list, short, the ultimate goal is to improve the efficiency of the IPO market and the stock market, promote China's stock market, fast forward to the mature markets. At the end of this section describes the main contribution of this paper. This paper studies the content: issuers, underwriters and investors as the main body to explain IPO first day of high yield behavioral finance theory to analyze the possible causes, and then want to be able to get through empirical research on China's stock market significant determinants, in turn, can put forward some policy recommendations to try to improve the consequences of this problem. The core of the article is based in part on the issuers, underwriters, investors as the main behavioral finance theory expounded and empirical analysis. As used herein, the inquiry system was established after the 2005 IPO data. In this paper, the method of empirical analysis, through stories, lessons, theory reasoning instructions, comparative analysis of methods and economics econometric analysis methods are discussed and research, analysis of the causes of the high yield of the first day of IPO, indicating that the current of the existing problems and the causes of the market environment.

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