A Study On Investor Behavior And IPO Pricing Under The Enviroment Of Networking Media

In the internet age, networking media has become an important source of information for investors. For the IPOs, because of the low exposure, public informations about the IPOs are relatively limited, networking media play an important role which is irreplaceable by other subjects. Under the condition of unlimited information and limited cognitive, the networking media not only attracts the attention of investors by transmitting information, but also impaces the the investors’ value judgment on IPOs and changes investors’ demand for asset and securities, thereby affecting the IPO stock price behavior.Therefore, it is very meaningful to study the relationship between the behavior of investors and the IPO pricing and to explore how the networking media to affect the IPO pricing by influencing investor’s behavior. It is also meaningful to explore the interactive behavior between institutional investors and retail investors in the process of IPO.The majority of existing study only cares about the simple correlations when it analyses the relations between the networking media report and IPO pricing, and partly literatures examine the tone of networking media report on IPO pricing.There are few literatures to discuss the mechanism which networking media firstly impacts behavior of institutions and retail investors, in turn affecting the IPO pricing. At the present, there is no study which cares about the interaction between institutional investors and retail investors in the process of IPO.This paper attempts to first explore the transmissing mechanism and specific process of networking media affecting IPO pricing through institutional investors, then to explore the intrinsic mechanism and specific process of networking media affecting IPO first day return through retail investors.Meanwhile, we also study the interactive behavior between institutional investors and retail investors in the process of IPO. The main contents and conclusions are as follows:Firstly, we develops a model in which information structure is described with random variable and the value of faith of investor is updating with principle of Bayesian under the background of inquiry system of China to investigate the influence mechanism of networking media report on IPO pricing.We abtain the equilibrium IPO price under the condition of rational expectation equilibrium based on information economics and behavioral finance theory.The results of the model shows that the IPO offer price adjustment is positive related with private information of institutional investor and networking media report. The more the number of inquiry institutional investors who regard the IPO as “bullish”, the greater the IPO price upward adjustment.The more of the networking media report non-negative news,the greater the IPO price upward adjustment.Secondly, this paper takes advantage of the Baidu News Search engine to extract date of networking media news. We test the impact of number and tone of networking media report on IPO pricing and explore the role played by inquiry institutional investors through subscription and bidding behavior in the process of impaction. The empirical findings show that the non-negative reports of networking media can improve the IPO price, namely the IPO price is adjusted upward relative to the investment value given by underwriter. But the negative reports lead to downward adjustment of IPO price.The effect of networking media report on IPO price is realized mainly though participation and bidding behavior of institutional investors.To be specific, the non-negative networking media report can improve the degree of participation and bidding of institutional investors,while negative coverage can wenkened the degree of participation and bidding of institutional. In a word,the result confirmed the microscopic mechanism which is presented “media information—investor behavior—asset price”.Thirdly, based on IPO process we still test the impact of number and tone of networking media report on IPO pricing and explore the role played by retail investors through subscription before IPO listing and trading behavior in first day of IPO listing. The empirical findings show that the non-negative networking media report can improve the IPO first-day return, while negative coverage can reduce IPO first-day return,but the result is not significant statistically because the quantity of negative report is too little. The effect of networking media report on IPO first-day return is realized mainly though participation before IPO listing and trading behavior after IPO listing of institutional investorsFinally, this paper takes advantage of “Guba” which is affiliated with Eastmoney to develop a variable of retail investor sentiment.We use the variable to explore the interactive behavior between institutional investors and retail investors in the IPO process. The empirical findings show that retail investors can observe the subscription and bidding behavior of inquiry institutional investors and learn to take the following strategies. It means that the behavior of inquiry institutional can guide the retail investors’ decision-making. At the same time, inquiry institutional investors also observe retail investors sentiment and take account of the sentiment in subscription and bidding.