Irrational Behavior Of Investors On IPO Underpricing In China

The problem of Initial public offerings has been much concern about the financial sector and academia, especially the mystery of IPO under-pricing. The IPO is a phenomenon of IPO under-pricing that new shares at an issue price lower than the first dealing day's closing price, and IPO investors considered that they will be able to get an excess return. There are mainly two explanation of IPO under-pricing, one is the level of new shares on the market price is too low, the other is the closing price on the secondary market's first day artificially high. Early scholars consider that our country strict release control and the non-marketability's new stock release system causes the issue price is too low at the primary market, so caused our country's IPO under-pricing in high. However, the reform of new issues of regulation and Issuing pricing way did not change the high IPO under-pricing phenomenon. To implement inquiry system may be reduces IPO under-pricing at some extent, but did not eliminate the high IPO under-pricing fundamentally. The article uses Stochastic Front Approach to test the efficiency of IPO pricing research shows that our country's IPO pricing has become more reasonable under the existing distribution system, Therefore, the under-pricing of new shares on the first market is not the real source of high IPO under-pricing. Therefore, the focus of research shifted to investors on the secondary market, in the behavioral finance framework, through the research of the investor's irrational behavior to explain the real source of high IPO under-pricing in the micro level.The article analyzes the irrational behavior of investors, the sources, characteristics, and divided irrational investors into fanaticism investors and positive feedback investors. And use the DHS and DSSW model to analyze the two kind investors how to affect the IPO under-pricing. The article have an empirical analysis about irrational investment behavior of investors, and to choice the data from 2005 to 2009 of Shanghai and Shenzhen-listed A shares as a sample, according to investor enthusiasm, positive feedback traders and comprehensive reflection of the choice of index variables. In addition the article make a comparison between different sections, different industries. And at the last the article should focused on the construction of stock market environment, investors'psychological training, so that to ensure the stable development of securities markets.