Research On IPO Underpricing Based On Uncertainty And Aftermarket Liquidity

The paper mainly focuses on the high underpricing phenomenon of IPO (Initial Public Offering) of Chinese security market. IPO underpricing is very common in every country's stock markets. Chinese stock market is an emerging market, is still not mature enough, underpricing is even obvious. The paper mainly uses uncertainty and aftermarket liquidity needs to interpret the high underpricing of Chinese security market.The paper study IPO underpricing from the Perspective of uncertainty at first. Introducing ex-ante uncertainty, we explain the underpricing on the side of information asymmetries hypothesis. We established a model to analyze the impact of ex-ante uncertainty on stock prices in fixed-price mechanism and Bookbuilding mechanism, then we do a regression analyze on the data of China's 2002-2006 IPO listing. we use the factors that impact ex-ante uncertainty as the explanatory variable, such as the size of companies, the length of the company operating time, the volatility of proceeds after the IPO have listed, Mechanism for pricing and distributing and so on. we found that the IPO underpricing is positive related to ex-ante uncertainty of companies'value. The greater the uncertainty, IPO underpricing the higher. IPO underpricing in fixed-price mechanisms was higher than IPO underpricing in Bookbuilding mechanism.The paper study IPO underpricing from the Perspective of aftermarket liquidity at second. we introduce after-market liquidity needs to interpret IPO underpricing in bookbuilding mechanism. In order to creating aftermarket trading, The underwriter and issuer underprice the issue to attract low-valuation investors, creating some extent stock flipping, heightening stock liquidity. Then, recurring to exchange rate and effective liquidate speed, we do empirical test on the data of China's 2005-2006 IPO listing, we found that new stock'liquidity decrease with the time after come into the market increasing, and the larger liquidity in the earlier period of the IPO aftermarket, the higher IPO underpricing rate.