Research On Pricing Efficiency Of China 's Stock Market

In order to prevent the irrational speculation of new shares, both Shanghai and Shenzhen Stock Exchanges set new rules especially for the trading of new issue stocks in December 2013. The new regulations limit the price range on the first day of trading, which made no sense of the phenomenon which has existed in China’s stock market for a long period that the transaction price is much higher than the issue price. Since January 2014 to restart the IPO, the trading price is much higher than the issue pricing in the stock market of China, attracting a lot of money gathering in the primary market, which may bring all sorts of malpractices. Therefore, the study on the IPO pricing efficiency of China’s stock market is very necessary. Because pricing rationality is not only related to the economic interests of investors, but also in relation to the issue of financing costs.Many researches at home and abroad directly regard the IPO underpricing rate as standard measure of IPO pricing efficiency. However, due to China’s stock market is not efficient market. Therefore, only using the absolute efficiency standards to measure IPO pricing efficiency of China’s stock market may be biased. This article will study on IPO pricing efficiency, using the 313 stock data which initial public offering during January 2014 to July 2015, combined with the relative efficiency and the absolute efficiency, in order to find out the factors leading to the huge difference between initial and secondary market pricing.Combining the running status of the stock market of our country at the present stage, we found that the primary market and the secondary market pricing are of a huge difference since 2014 when restarting IPO. The average IPO underpricing rate is 287%, which rarely occurs in the global capital markets. Specifically, underpricing rate is the highest for GEM listed companies. In terms of the industry point, the average underpricing rate of transmission of information, software and information technology services industry is the highest. The proportion of China’s individual investors trading volume ratio is too high. At the same time, due to the good financial environment, high market index, and a sharp rise in the number of A-share investors during this period, the investor sentiment get higher. Therefore, optimism in the secondary market and the speculative factors may also result in the high IPO underpricing rate.Through the empirical research on the relative efficiency, this paper argues that the IPO pricing is relatively reasonable in China’s stock market from January 2014 to July 2015, because issue pricing reflects more information about the intrinsic value of the enterprise. The absolute efficiency of empirical research shows that underwriter reputation index has a certain meaning to the IPO underpricing. So the main underwriter has the incentive to reduce the issue price, maybe for the sake of avoiding litigation, or for the worry of the risk of issuing failure due to higher issue pricing. It is also possible that it is because of the window guidance of the Commission on the issuance price earnings ratio.