Investor Sentiment And Ipo Underpricing Correlation Study

The initial public offering under-pricing is the phenomenon that the closed price is higher than the issuing price in the first day when a company is listed in the stock market. The phenomenon of IPO under-pricing exists in almost every stock market whether it's mature or not. Especially in China, the IPO Under-pricing rate is much higher than in other countries, and this abnormal occurrence attracts many learners to study on it.Many foreign scholars believe that the secondary market is efficient, and a majority of their work is focused on the low price in the primary market. A lot of Chinese scholars have tested the IPO under-pricing issue in China, using theories advanced by foreign experts. The high IPO under-pricing rate issue in China Stock Markets (CSM) has its own characteristic, and can not be explained perfectly only by foreign theories. The book building method, a market oriented pricing mechanism, has been introduced into China's IPO market since 1995, and in theory, it can reduce the high under-pricing rate, but the actual effect from this reform is not so effective. Now China's IPO under-pricing rate remains high, and we find there is a close relationship between the under-pricing rate and the market volatility in China. In other words, the market oriented pricing mechanism didn't change much, so researches from the perspective of secondary market are extremely necessary now.This paper is studying the connection between the investor sentiment and IPO under-pricing rate. It can be divided into five parts. First, we classify the former research about IPO under-pricing issue. Then, we use three theoretical models to explain why investor sentiment can affect the prices of assets, and we also analyze the source of investors'optimism in China. According to the book build method used in China, we establish a three stage model to show how investors'optimism sentiment to affect the IPO under-pricing rate. Next we use a multiple linear regression model to test this theory. We use the IPO under-pricing rate as the explained variable, and take the alternative variables for investor sentiment and other control variables as explanatory variables for the empirical study. We find that there's a significant correlation between investor sentiment and IPO under-pricing rate. Finally, according to the theoretical arguments and empirical results we give out conclusions of this article, and raise several appropriate policy advices, some shortages of this paper and the prospects for the research in future.