Impacts Of Investor Sentiment On IPO's Abnormal Initial Returns Of China's Growth Enterprise Market

IPO's abnormal initial return is one of the mysteries in the study of modern finance, in recent decades, it has attracted more attention of scholars. Since the 1990s academics put forward a lot of theoretical hypothesis about the phenomenon of IPO's abnormal initial return in China: underpricing in the primary market, overvaluation in the second market and the special regulations in Chinese market. At the same time, along with the further research in psychology and economics, behavioral finance theory has got significant development. Behavioral finance shows that investors'sentiment is the key factor to IPO's abnormal initial return.This paper bases on behavioral finance theory, by analyzing the sources and reasons of investors'sentiment, points that investors'sentiment is widespread in Chinese capital market. In the following analysis we introduce two models: DHS and DSSW models to understand the sentiment of optimistic investors and positive feedback traders. Further more, we analyze the sentiment traders'influential mechanism. Based on the two models, the paper argues that at the beginning of IPO, optimistic investors are extremely optimistic for new shares and have great demand to make the transaction price deviate from the new price. Then the positive feedback traders also join in the demand for new shares after observing new price, which makes the closing price further deviate from the first real value.This paper constructs a index system of investors'sentiment. The optimistic investors'sentiment index includes lotrate (LOT), BM; The positive feedback traders'sentiment index includes SKF; The comprehensive sentiment index are turnover (TURNOVER)and consumer confidence index (CCI). The control variables index is SHARENUM. Through correlation and multiple regression analysis, we find that IPO's abnormal initial return of China's growth enterprise market increase as investors'optimistic and positive feedback sentiment increases. In addition, through the comparison between the industries, investor sentiment are more upsurge in partial industry, and the corresponding IPO's abnormal initial return is also higher.This research shows that investor sentiment commonly existing in the capital market, especially the China's growth enterprise market. Investors'sentiment is the most important factor in the IPO's abnormal return of China's growth enterprise market. To reduce the IPO's abnormal initial return effectively, we must pay enough attention to investors'sentiment and take relevant measures and policies to restrain investors'overheating sentiment.