Inquiry System, Investors, Non-rational Behavior Of Ipo Underpricing

Initial public offering is when a company issues common stock or shares to the public for the first time. IPO underpricing reflects in short-term underestimated, characterized by high average rate of return, and widespread in the world. The classic financial theory is based on the assumption that people are rational, and on the most traditional area of finance, but the paper mainly study high IPO underpricing with the analysis of investor irrational behavior from 2005 when the system of inquiry was implemented.On the basis of IPO underpricing summary of theory and empirical research papers, the paper analysis invertors'irrational behaviors and point that herding behavior, excessive speculation and excessive trading are the causes of IPO underpricing.Using a database of all public companies from 1 January,2005 to 19 September,2008 on Shanghai Stocks Exchange in China on inquiry system. This research has explored the invertors'irrational factors which cause the IPO underpricing, and do the correlations analysis between them. Then this paper has set up a linear regression model about the IPO underpricing, examined the relationship between the factors and IPO underpricing.The empirical results reveal that the degree of IPO underpricing on inquiry system still high. The lottery rate which reflecting the herding behavior has negative influence on IPO underpricing ratio. The first day trading rate which reflects the excessive trading has positive influence on IPO underpricing ratio. The ratio of highest price of first day to the issue price has positive influence on IPO underpricing ratio.With theory and empirical conclusions, some measures should be taken so the stock market would be mature and effective, and the government should make the investors more rational to improve the efficiency of capital collocating in IPO market.