Study On Excess Return Of IPO Under Enquiry System

Initial Public Offering is the first time companies sell stocks to publics. The excess return of IPO is offering price subtract from closing price on the first day going public. The excess return of IPO is one of the most difficult subject in the finance area all the time. In 1975, Ibbotson researched the data from US stock market and found that there is excess return in IPO, then, a lot of researchers have interest on it.. Though economists around the world have devoted much time and energy on it, however, there is still n theory could explain this problem perfectly.Because the excess return of IPO is offering price subtract from closing price on the first day going public, the source of excess return of IPO may come from the primary market or from the secondary market. But most researchers only focused on primary market, but ignored the secondary market. However, the reason of excess return of IPO is still unknown So I put my study under the reforms of pricing system, and want to find the source of excess return of IPO.Firstly, the paper analyzes IPO underpricing level in China .I find that the underpricing level in China not only higher than mature markets, but also higher than emerging markets. The underpricing rate has no rule from time to time, and it is not going down with marketlization of pricing system.Secondly, review the history of reforms of pricing system. During these decades, the pricing system has experienced several phases, and marketlization is not so easy. In January 1,2005,the reforms enter a new phase, it can be seen as a milestone of marketlization of pricing system.Thirdly, demonstrate two samples from 2001 to 2007 of China's stock market. I find that the source of excess return of IPO is not come from the primary market but form the secondary market. The reforms of pricing system developed the efficiency of pricing slightly, but it didn't lower the underpricing rate. So the reforms run into a wrong way a certain extent.Finally, according to the above researches, conclusions put forward to perfect the IPO pricing system and strengthen the related reforms.