Modeling And Empirical Study On Initial Public Offering Underpricing In China Based On Investors' Irrational Sentiment

Comparing with foreign mature capital markets, the phenomenon of IPO underpricing in Chinese IPO markets is more serious. Thus based on the Chinese special institutional background and market environment, many scholars put forward kinds of theories and hypotheses. But it is still at the initial stage that inquiring the formative reasons and influence degree of IPO underpricing macroscopically and microscopically, qualitatively and quantificationally. Bookbuilding mechanism has been introduced into Chinese IPO markets since 2005, but whether the implementation of it can obviously improve the condition of IPO underpricing under fixed price mechanism or not? And whether bookbuilding mechanism can be improved to promote the efficiency of IPO or not? Little theoretic and empirical study has been carried through. Therefore, this thesis will study the phenomenon of high IPO underpricing in Chinese IPO markets systematically.Studying on high IPO underpricing, the thesis believes that the historical information of high IPO underpricing forms the retail investors'ardent sentiment. According to this, a relational model about the investors'optimistic sentiment and IPO underpricing is developed under fixed price, bookbuilding and auction mechanisms. Then the thesis inferred expression about IPO underpricing under institutional and retail investors'mixed bookbuilding issue mechanism. Meanwhile, some conclusions are derived: when investors'optimistic sentiment exists in the IPO markets, IPO underpricing can be decomposed to the intentionally underpricing in the primary market and the wrong price in the secondary market. Furthermore, it is the investors'optimistic sentiment that causes high IPO underpricing. Discount issue is caused by the non-marketable new stock issue mechanism and so on.In the empirical study of IPO underpricing, the thesis proves that the significant positive relation between investors'optimistic sentiment and high IPO underpricing by using the least square method. And the stability of main proxy variables is tested. By analyzing the significance change process between new stock issue mechanism and high IPO underpricing, the thesis finds that it does not have the statistical significance when the investors'optimistic sentiment is enough intense. Consequently, it is empirically supported that high IPO underpricing mainly comes from the wrong price caused by the investors'optimistic sentiment in the secondary market and has nothing to do with new stock issue mechanism in the primary market.The thesis advances some policy suggestions of new stock issue mechanism reformation, such as raising institutional investors'bookbuilding efficiency, advocating retail investors investing rationally, trying adopting mixed bookbuilding facing the strategic investors and the institutional investors and the retail investors, bringing in completely marketable tendering mechanism. In the end, the successful case of new stock mixed issue mechanism in Hong Kong provides the precious experience and the reformatory idea to consummate Chinese new stock issue mechanism.