Investor Sentiment And Ipo Discount

A lot of empirical studies indicate that IPO underpricing is an extended and universal phenomenon in the stock markets of different countries all around the world. After this phenomenon was discovered initially, in order to explain it properly, financial economists pay much attention to it and have developed several theories form different aspects, including asymmetric information theory, market system theory, IPO allocation theory, and so on. As the behavioral finance develops rapidly, some scholars start to bring investor sentiment into their researches.The main content of this paper is to study the investor sentiment's influence on recent high level of IPO underpricing in China. Firstly, this paper analyses theoretically the influence of investor sentiment on IPO underpricing. The Derrien model (2005), which is based on a series of reasonable assumptions, proved the rate of IPO underpricing increases as the optimistic investor sentiment increases. Then, using the date about 101 issues in Shenzhen Stock Exchange's Small and Medium Enterprise Board , this paper analyses empirically the influence of various factors on IPO underpricing.The empirical result indicates that investor sentiment is the main reason of recent high level of IPO underpricing in China. Though the information about issuers really has effect on IPO underpricing, the effect is rather limited.Finally, according to the empirical result, this paper give suggestions respectively to the investors, regulators, exchanges, as well as issuers and underwriters, in the hope that the high level of IPO underpricing in China can be reduced.