China's Stock Market, Ipo Underpricing Mechanism

The phenomenon of underpricing on the initial public offering exists in the capital markets of many countries. The phenomenon is common , but the underpricing is graver in the developing countries than in the developed countries. The underpricing on the initial public offering is especially grave in our countries because of the short history of our capital markets.After review the pricing , issuing , the history of development in the initial public offering , the empirical analysis and academic research on underpricing the initial public offering in our stock markets in 1987-1999 , we do empirical research on the underpricing of 423 initial public offering in 2000-2005.7. We find that the return of A stocks in the first day was 948.6% , the return had been declined from 1996 , the average rate of underpricing was 111 .32% , the return on B stocks had been risen , from 11.6% of 1995-1998 to 32.6% of 1999-2000. But the underpricing of A stocks is higher than B stocks. In general , the underpricing of IPO still exists . In order to search for the reasons of underpricing and the way reducing and eliminating underpricing , the paper investigate the factors affecting underpricing by using the correlation analysis and regression analysis , then do clustering analysis on the exhibition of the stocks . We find that there are many reasons work on the underpricing , which include the status of the markets , the quality of the company which issue the stocks and the issuing mode of the IPO. The underpricing deals with the advantages of the custody , the issuing company , consignee and the investors . It is the results of gambling.The paper analyze the underpricing from the asymmetry information and rational expectation . We think it is the asymmetry information and rational expectation which result in the underpricing. In the former literatures , there is no research from this point of view . But because of the data and the length , there is no empirical research . In order to make the pricing of the IPO reasonable , the issuing mechanism of IPO must be reformed. At last , we bring forward the suggestions : magnify the supply , information transparency;pricing by the markets , the same stocks , the same prices;selling in the public , enlarge the circulation;enhance custody .