China's Ipo Market Ipo Underpricing

Compared to mature capital markets abroad, the high IPO-underpricing is a distinctive feature of China stock market. In academia, it's called one of the three mysteries, which seem to be simple, but always a myth.What are the true reasons for the IPO-Underpricing happening in China? Affected by what? How to eliminate it? At present, by combining our country's unique institutional context and market environment, many of domestic scholars have some related researches on the deviation of the primary market and the investor sentiment of the secondary market, respectively. However, there are few breakthroughs.In the real world, the regulators have taken a variety of measures to reduce IPO-underpricing situation, one of which was the bookbuilding system, taken in 2005 and aiming to decrease the deviation of the two markets, however, these measures still don't work. In this paper, the author plans to have a deep research on the reasons and factors that cause IPO-underpricing phenomenon.Different from previous studies, this paper studies both of the pricing deviation in the primary market caused by institutional bias and the deviation in the secondary market by the investors'sentiment. After deep research, I find that it can break down into two parts of reasons which cause the high IPO-underpricing on the first day:the market pricing bias and the investors sentiment bias. Based on the breaking down, I use the single-way ANOVA to test the two biases'characteristics, respectively. And the results show that:the implementation of the bookbuilding system can reduce the market pricing bias greatly; while, at the same time, investos sentiment bias increases obviously and it has more and more influence on the IPO-underpricing on the first day. In all, the pricing efficiency improvement in the primary market is offset by the negative effects of the increase in the investors sentiment bias.The current bookbuilding system fails to meet the expectations of reducing the IPO-underpricing ratio.In the empirical research of the IPO-underpricing, this paper uses least squre method to examine the factors that influence the IPO-underpricing and the relationship between the investors'sentiment factors and the IPO-underpricing.Then I introduce dummy variables according to the different pricing methods.And the empirical results show that investors' sentiment has high positive correlation with the IPO-underpricing, and different pricing mechanisms don't affect the IPO-underpricing.