| The underpricing of initial public offerings is common around the world.Chinese stock market faces a greater underpricing than other countries.Scholars both home and abroad have studied in-depth in this phenomenon theoretically and empirically.Early explanations including "Winner’s Curse",Signaling model are about the information Asymmetry.Since there is big scake difference of underpricing through time,behavioral theories have become a research hotspot these years.Individual investors are among 90%of Chinese capital market.They are more prone to be"sentiment investors" the institutional investors.Along with the special issue and pricing regulations makes Chinese stock market become a unique environment for behavioral research.Whether the extent of Chinese stock market underpricing is driving by the market institutional environment or by the behavioral factors?This paper try to link behavioral theories and factors to the ipo underpricing,doing a systematically research to reveal the mask of ipo underpricing.Based on prospect theory,investor sentiment theory and other relevant research,we use the IPO data from Chinese A-share market during 2005 to 2013,study three different research problems of behavioral theory and ipo underpricing.the skewness preference of individual investors during ipo process is our first point.And we also doing research in the influence of weather factors and air quality with ipo underpricing.Empirically we verify the importance of behavioral factors in ipo underpricing and discuss the possible mechanism,provide new research scope and empirical evidence in this field.This paper is composed of seven chapters,the major contents are outlined as follows:Chapter 1 is the introduction.We have a brief presentation of the research background,motivation and the research significance.We show the main content,research design and logical frame.At last we introduce the main contribution,innovation and yet to be improved.Chapter 2 is the literature review.We look back to the literatures and research done by scholars both home and abroad.We focus on the theories of information asymmetry and behavioral explanation.Chinese researches are mainly about the influential factors,institution and behavioral aspects.Chapter 3 is the history and evolution of Chinese initial public offering issue and pricing regulations.In the pricing aspect,we have the phase of administrative pricing,P/E-restriction-relax pricing,regulated P/E pricing,inquiry pricing stage.And in the issuing aspect,we have random draw,proportion allotment,on-line bidding,on-line pricing and on-line inquiry,this chapter emphasis the unique book-building system of china and the lottery-like mechanism of share subscription.Chapter 4 sdudies the skewness preference of Chinese individual investors and Chinese initial public offering.based on prospect theory we assume the expected skewness as the reference point,so that whether investors face left or right skew will have different invest behavior,thus have different influence on retail demand,first day return and long term performance.Chapter 5 studies the weather factors and Chinese initial public offering.by choosing sky cover as the main influential factor,we regress sky cover with the orders and the amount of money investors subscribe,then with the first day return and long term performance,found significant results in the relationship with sky cover.Chapter 6 studies whether the regional air quality will affect investor sentiment,so to the ipo underpricing in china.We use air quality measure to proxy for the investor sentiment,run regressions within air quality index and the dependent variables to find out the empirical answers.Chapter 7 is the conclusion and implication of the research,introduce the insufficiency of this paper and the possible developments in the future.The main research conclusions are as follows:Firstly,based on Prospect theory,we find that investors especially individual investors will take expected skewness as the reference point in decision making process,so the skewness preference will have influence on Chinese ipo underpricing.for the subsample of right-skew new issues,there is a positive relationship between expected skewness and first day return,a positive relationship between expected skewness and retail demand and a negative relationship between expected skewness and long term performance,but no significant relationship with discount rate.It shows that whn facing right-skew new issues,people tend to show their preference of skewed one and the ipo underpricing mainly coms from this behavioral mechanism.For the left-skew subsamples,regression results show significant positive relationship between expected skewness and discount rate,which means the underpricing of left-skew new issues comes from the low pricing,and will quickly go up to the true value after being listed.So there is no relationship between expected skewness and long term performance.The results above still hold no matter the ownership of the new issue is state-owned or not.Secondly,by literature review we conclude sky cover as the mainweather factor.We propose that the weather factor will indirectly affect ipo underpricing by affecting investor sentiment.The empirical results prove the significant negative relationship between sky cover of subscription date and ipo retail demand,a negative relationship between sky cover of list date and first day return,a positive relationship between sky cover of list date and long term performance of new issue..This may imply the investors will easy be affected by cloudy days,feel depressed and reduce their tendency to buy new shares.Bad weather may also affect investors’ transaction motivation.The influence may last long so the long term performance will flip.Thirdly,by using air quality index we study the affection air quality may have on ipo underpricing.The results show that when regional air quality get worse,will lower the investors’ enthusiasm to bid for new shares,make them more risk-averse so that they will lower their valuation of listed new stocks.In the long run,the negative emotion brings the long term performance reversal.In regions of difference level air quality,this influence is still significant,but the scale changes accordingly.The PM2.5 as a composition of the AQI index,is the most dominant factor that influence individuals’ senditment to the IPO underpricing.Compare to the existing literature,this paper brings several new ideas:Firstly,with the special regulation in Chinese ipo process and investor make-up,we are the first to use prospect theory in explaining and testing ipo underpricing and long term performance.We assume investors take expected skewness as the reference point to make their investment decision.They look back to the prior three months return distribution of listed companies in the same industry with the new issuer to get the ex-ante judgment.by empirical regression,we confirm the assumption.Secondly,we first distinguish left-skew issues from the right-skew ones to explore expected skewness elaborately.by analyzing the mean and median value of two subsamples,we find different skewness will have different influences on investors’ mental utility.in right-skew subsample investors have skewness preferences just as previous research.But the left-skew subsamples show different results.We find when people facing left-skew new issues,they tend to speculate other than buy-and-hold.so the long term performance will not be affected.Thirdly,we first study external environment factors’(weather and air quality)influence on ipo underpricing.We indicate the indirect path of how these factors afect investor’s emotion and behavior,then impact on the ipo underpricing,shed light on the possible research opportunities in the future.As weather and air condition factors are both external variables,it can avoid the interference of endogeneity.By the usage of air quality index,we find significant relationship between air quality and ipo underpricing,fills the literature gap.Fourthly,previous studies are only able to measure retail demand or the presence of investor sentiment indirectly,such as the prices from pre-IPO trading in the European grey markets to proxy for small investor valuations or use retail trading to proxy for small investors’ trading.This assumption may not always hold since not all wealthy individuals in China and elsewhere trade in small amounts.These measures are less reliable.By contrast,our study complements previous empirical studies by employing two direct measures of retail demand.By using subscription orders and the amount of money,we can avoid the drawbacks of indirect measure and enhance the reliability and accuracy of the results. |
