An Empirical Study On IPO's Initial Return Base On Behavioral Finance

IPO's abnormal initial return also called IPO underpricing has puzzled scholars for many years. Compared with stock of developed country, the phenomenon in our stock market is more serious. Based on previous strict financial regulation, researchers normally think the financial regulation makes IPO underpricing in the primary market. Jan 1, 2005 Market-oriented reforms in china IPO market -Inquiry System were implemented. However the abnormal initial return is still very high in china, so I think the cause of the phenomenon is the secondary market not to be a perfect market. This article researches this phenomenon from the perspective of behavioral finance and investors' sentiment.Firstly, this article introduces the basis of behavioral finance and investor sentiment, the behavior of the investor and how investor sentiment affected the pricing of assets. This article set up a new model to china's IPO market. Institutional investors have acquired shares with three-month period sell limited. In a hot market, institutional investors to obtain new shares at a discount compensate the risk the hot market may come to an end at any time.The source of investor sentiment a further step, we analyze the resources of investor sentiments and find that the return rate of market, The level of market valuation, preferences low price shares, preferences shell Resources, industry character are he resources of investor sentiments.Uses the IPO data after 2005, we make regression analysis and find the all factors of investor sentiments have a significant impact to IPO's abnormal initial return.