Study Of The Long-Run Performance Of IPO In China's A-Share Market

The long-run performance of Initial Public Offerings(IPO) is one of the three puzzles in IPO studies, and also a hot issue in western academy. In May 18th, 2006, China promulgates the"Management Method of Initial Public Offerings"which means the paused IPO will be started up soon. Under this circumstance, the study of China's IPO market plays a significant role.In the first place, this paper analyzes the entire IPO market. We use the sample of IPO stocks issued in 2000 and analyze its three-year performance. For completeness, we use three methods to compare the sample IPO stocks and benchmark stocks, which are Cumulative Abnormal Returns, Buy-and-Hold Abnormal Returns and Wealth Relatives. Through this comparison, we find in China's IPO market there does exist an underperformance of IPO stocks to some extent. Then, we study the reasons for IPO underperformance from the institutional point of view. According to the specific features of China's market, we start from the corporate governance theories and try to dig up the in-depth reasons for China's IPO underperformance. With the empirical study, we propose seven propositions and use multi-regression to justify these propositions, which lead to several conclusions to explain the IPO underperformance. Based on these conclusions, we also provide valuable suggestions to complete China's stock market and IPO market. Finally, we further our study from the investors'point of view and use the Prospect Theory to come up with an"Indifference Hypothesis"to explain why investors appeal to the IPO stocks even though they know there is a probability of IPO underperformance. Through an empirical study, we prove the feasibility of the Indifference Hypothesis. Moreover, we use the DHS model to demonstrate that it is investors'overconfidence that leads to the price reversal of IPO stocks'prices.