The Earning Feature Of The A-share Primary Market And The Separation Of The Funds Between The Primary And Secondary Markets

By considering the actual situation of the stock market of China, this paper suggests that there is a specific characteristic in acquiring earnings in the primary market. Investors do not need to analyze the corporation or the market, nor do they need to collect information. They can receive considerable earnings at a low risk by equally dividing their money to the new issues. There are several reasons for this particularity, including the huge and stable price gap between the primary and secondary market, the rate of return averaged by both the immense amount of subscribing funds and the issuing method and the individuality of the earnings between the primary and the secondary markets. Such a specific characteristic makes it possible for the separation of both the investors and the funds between the primary and the secondary markets. Under certain circumstances, some of the investors never make secondary market investment; they only subscribe new issues and sell them out as soon as they are listed. The introduction of "strategic investors" does not completely sovle this problem, but simply delays the time to sell the new issues.This paper makes both theoretical and empirical investigation to the stock market of China. A model is formed and analyzed at the beginning to discuss the possibility and condition that the phenomenon of fund and investor separation between the primary and secondary markets emerges. Then both the basis and some of the inferences are tested through empirical studies. Many IPO related problems in China are involved, such as underpricing, the long-term performance of IPO and so on.The most prominent feature of this paper is that it does not simply apply the theories based on western markets; on the contrary, it presents its arguments on the basis of the characteristics of the domestic stock market and describes the seperation of the primary and secondary markets of A-share stocks. Knowing such a paricularity is very helpful to understand the problems in the stock market of China to provide references for its future development.