The Performance Of IPO Share Application

In recent years, investing in the primary market is quite fascinating to most Chinese investors. This paper will analyze the IPO return characteristics for online investors.First, this paper chooses IPOs whose subscription day and listing day are during the period from May, 2006 to Dec, 2010. IPO application real return is defined as the return of capital for investors net of cost. IPO excess return is the IPO's real return minus the average real return at the subscription day.Then, this paper uses a regression model or a classification model to indentify factors that have significant influence on the application return of the IPO shares. Models for IPO real return, IPO average return and IPO excess return are used. Among the stock related factors, issued shares, total shares, raised fund, issuance P/E, listing place, industry, expected return have significant influence on IPO return. Among market related factors, repo rate, index point, short-term, middle-term, long-term index change are also significant factors for IPO return.As to multifactor model, for IPO real return, the multifactor model can explain 21.6% deviation at best. For IPO excess return, the multifactor model can explain 7.6% deviation at best. For IPO average return, the multifactor model can explain 35.3% deviation at best. It is evident that the average IPO return can be predicted better.Next, this paper gives the simulation of IPO application in the past. The annual return is about 6.4% considering the financing cost. In general, it is a good investment tool, for its high Sharp ratio and low correlation with market return.