| The new issue mechanism and pricing in China's stock market has been the emphasis of the theoretical research and the reform of China's security market. The overseas empirical studies manifest that western mature security market has dual characteristics, namely, the short-term underpricing and long-term overpricing. In China, the underpricing degree of Initial Public Offerings(IPO) is significantly higher than that of western security market. On the other hand, as for long-term return of new issue, there are different conclusions. Presently, the majority of explanations for the short-term and long-term pricing performance of China's new issue rely upon western traditional theory hypothesis, which, so far, can not make convincing explanations based on specific institutional background and market conditions of China's security market. In fact, China's new issue system are experiencing market-oriented reform and has strong administrative interference. Therefore, there are lack of significance only based on western traditional theory hypothesis. I think that relation between evolvement of the new issue system and pricing efficiency is the present research emphasis. But, the majority of relative research literatures are only staying on the policy designing. Some empirical studies also can't provide convincing conclusions because either research samples are small or research period is too short.Since the beginning of 1990s, the new issue approval system in China have successively experienced approval system and authorizing system. The IPO pricing have experienced for phrases such as fixed-price, relatively fixed P/E ratio, accumulative bid pricing and controlling P/E pricing. The new issue mode also experienced continually transformation. In a word, the whole new issue system have stepped into market-driven ones from planned ones. Is IPO pricing efficiency really improved? There are a lot of divergences and we can't find convincing answer. When former problem can't be resolved, China security regulatory commission introduced and began to implement book-building system and stock ownership separation reform in 2005. Now, we can't know these reform measures are whether beneficial for Chinese capital market. So, the paper will try to study the relation between evolvement of the new issue system and pricing efficiency and find some new convincing explanations.The article consists of five chapters.Chapter 1: Chinese first security market system frame and transformation process. Firstly, introducing some characteristics of Chinese security market, and then reviewing transformation process of the new issue system from three aspects such as the new issue approval system, the new issue mode and IPO pricing system.Chapter 2: Introduction. This chapter is foundation of the whole article. reviewing present available literatures and most of theory hypothesis, and then pointing out divergences, limitation and some problem of present researches. In my view, overseas research concentrated on the analysis and comparability of different offering mechanism and their efficiency but rarely on the market conditions and mechanism transformation because of perfect market and law condition for developed countries, these researches are lack of significance for Chinese market. Therefore, we should consider Chinese special system background.Chapter 3: Empirical analysis of IPO pricing mechanism evolvement and efficiency. This chapter is emphasis of the whole paper. First and foremost, defining the concept of IPO pricing efficiency through theory analysis. Then, dividing research period into 5 phrases on basis of market admittance system and IPO pricing way. Through comparing different phrases, I find that from approval system to authorizing system, pricing efficiency get improved only in pricing controlled phrases. Finally, verifying long-term performance based on Fama-French three-factor model. I find new issue of the second phrase have 3 years'long-term underpricing, other phrases don't any long-term abnormal return at 3 months, 6 months, 1 years, 2 years and 3 years. On basis of empirical data analysis, I can ascertain that IPO pricing efficiency of the second phrase is lowest and IPO pricing efficiency is gradually improving with market-oriented reform.Chapter 4: Explanation of IPO abnormal phenomenon. This chapter try to explain empirical studying phenomenon of the paper with Chinese market characteristics and system background. Conclusions are as follow:⑴The second phase is from bull market to bear market and most periods of the second phase is in bull market period. Investors have better expectation to new issue of this phase than subsequent bear market. So, there are the highest initial return and 3 years long-term underpricing in the second phase.⑵Because of special system background and market conditions, investors at the second market have the same psychological expectation to the new issue and other stocks. Therefore, there are not abnormal long-term performance at most of phases.Chapter 5: The conclusion and limitation of the paper. On basis of above empirical studying and theory explanation, this chapter give the last conclusion and point out several limitations of the paper.The innovation of the paper is as follows:⑴Defining the concept of IPO pricing efficiency from price phenomenon.⑵Showing systematically evolvement process of new issue mechanism and IPO pricing efficiency.⑶For the first time verifying long-term performance based on different phrase with Fama-French three-factor model. Finding that there is 3 years long-term underpricing at the second phase and other phrases don't any long-term abnormal return at 3 months, 6 months, 1 years, 2 years and 3 years.⑷Giving"the same psychological expectation"hypothesis on basis of Chinese capital market characteristics and behavior finance. |
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