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A Study on IPO Pricing Efficiency of China’s A-share in Inquiry System

Author: ZengLeHui
Tutor: ZhuBo
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: IPO Inquiry System Pricing Efficiency Factor Analysis
Type: Master's thesis
Year: 2013
Downloads: 74
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From the1990s to the present, the IPO pricing mechanism,which plays an important role in the normal operation of the entire stock market,gradually changed with the development of the market. Especially in recent years, in order to improve the efficiency of the IPO pricing, China’s IPO pricing mechanism reforms more frequently.The accumulated bidding inquiry system implemented in2005, indicates that China’s IPO pricing mechanism tends to a market-oriented big leap. In2009SFC develops the inquiry system in order to achieve the effect of further market-oriented reasonable pricing. IPO pricing mechanism reforms step by step towards a better vision, however, a reflection of the market seems to be far from satisfactory. Especially in the last two years, China’s new shares frequently break in the first day of listing. Therefore, we have to think about whether the current pricing mechanism reform truly improve pricing efficiency.A large number of studies have shown that there are significant differences between the corresponding efficiency of pricing of the issue of the pricing system. In the accumulated bidding inquiry system, the underwriters by way of inquiry to reveal the real market demand, price new shares on this basis. Therefore, the accumulated bidding inquiry system is considered to an efficient pricing mechanism. Commonly, people use the IPO underpricing indicators to measure the efficiency of IPO pricing. The smaller the rate of IPO underpricing, the pricing of new shares is more efficient. Of course, the premise is that the stock market meet the semi-strong efficient market assumes. So the secondary market trading price can reasonably reflect the intrinsic value of the company stock.Scholars of the United States and other developed Western countries use IPO underpricing indicators to study its IPO pricing efficiency. After years of research, they have received many outstanding academic achievements. China also has many scholars learning from Western theory to its own IPO pricing efficiency. Some scholars have concluded that our current inquiry system does not improve pricing efficiency. Otherwise, there are some scholars suggesting that the existing price system improve our pricing efficiency through their research. The opinions are not consistent.After reading carefully to understand the field of international and domestic research, combined with China’s specific national conditions, I believe that copying the methods from Western developed countries to study the efficiency of China’s IPO pricing is defective. In western developed countries, the stock market after years of development has reached a more mature, more perfect realm. So the secondary market has already meet the basic assumption of semi-strong efficient market. However China is still a developing country and all aspects of the institutional environment are not perfect. So the secondary market speculation atmosphere is more serious and the market is subject to more administrative control. It can not meet the assumption of semi-strong efficient market. Therefore, using the degree of deviation between the secondary market trading price and the issue price to measure the pricing efficiency, does not seem to be very accurate. About domestic IPO pricing efficiency of the existing system has been improved or not, there is no unified opinion. In this case, the paper intends to study the efficiency of the IPO pricing in the current inquiry system from two levels of the first stock market and the secondary market.The inquiry system is divided into two phases to study, called the section of2005to2008the old inquiry system stage, and the section of2009to2012the new inquiry system stage. This article intends to select the new A-shares initial public offering priced in accumulated bidding inquiry system in Shanghai and Shenzhen as the study sample. We will use factor analysis and regression modeling methods to do empirical analysis. The research is divided into two level, that is by examining the issue price reflects the extent of the intrinsic value of the company to study the efficiency of a market pricing and by examining new shares listed on the first day closing price to reflect the intrinsic value of the company to study the secondary market pricing efficiency. And on this basis, we will add external variables to examine the impact of the issuance, the market environment, investors’ behavior on the pricing efficiency. Finally, after doing the transverse and longitudinal comparative analysis of the empirical results, we draw relevant conclusions and give specific suggestions for improvement. According to the above ideas, this paper is divided into five parts. The first part is an introduction, to introduce background and implications of this article, the research framework as well as the advantages and disadvantages of the article. The second part is related to the literature review. The third part is about the course of the reform of the pricing system. The fourth part is empirical analysis,which is the main part of the core. The fifth part summarizes the results of the previous empirical analysis and concluded that, as well as giving some relevant policy recommendations and future research prospects.Ultimately, we come to this conclusion. Firstly, in the vertical perspective, the reform in2009to supplement the old inquiry system, has greatly improved the IPO pricing efficiency. But the last two years, there are some new problems emerged, which lead to the IPO pricing efficiency retrogression. The pricing efficiency is not just highly correlated with the market pricing mechanism. It is still heavily influenced by the efficiency of the secondary market. Therefore, we need to reform not only the stock primary market but also the secondary market, to make the entire stock of China develop healthily.The full text has some innovations, as well as some disadvantages. There comes to three aspects of innovation. Firstly, empirical research methods adopted a factor analysis, to solve multicollinearity problems. Secondly in the empirical research process, the new inquiry system stage was again divided to two section, the stage of2009to2010and the stage of2011to2012. Thirdly, we do analysis with a large sample and its conclusions are more convincing. Major inadequacies of this article are as follows. At First, variable indicators selected to reflect external factors may not be comprehensive and accurate. In the second, when we found the new problems which influence IPO pricing efficiency, we do no further empirical research, but only taking some qualitative analysis. Hope to strengthen in the later days of learning and accumulated experience, in order to achieve a higher level of research.

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