| In this paper, the object of study is the first day of the GEM IPO excess return phenomenon and the reasons for this phenomenon.IPO is a very important part in the middle of the primary market and secondary market,but there is a phenomenon of the first day IPO excess returns in IPO market of almost every country.This phenomenon is commonly referred to the high IPO underpricing phenomenon, as the closing price of IPO in the first day is much higher than the price of shares issued, therefore the successful participation of investors gain excess return more than the average market rate. In a mature stock market, shares the first day of excess returns is generally not more than 20%, in the emerging of new shares the excess return is generally 40%-80%, but in China's securities market the excess return is unusually high.China's Growth Enterprise Market is held ceremony of opening board in 2009 October 23, and the first batch of 28 companies on GEM will be list at the Shenzhen Stock Exchange in October 30,2009. This marks the official opening of the GEM for which almost a decade of preparation.However, the new shares in GEM has been stir-fried repeatedly, including the first batch of 28 enterprises,of which 10 enterprises of the first day of IPO proceeds in excess of over 100%, far higher than the market's average rate of return.The high IPO underpricing in GEM is a great harm, such as high underpricing makes the loss of capital allocation function of the GEM shares, leading to the fund imbalance between Main Board and GEM markets, resulting in a separation of capital market and secondary market.Therefore, we can say that many of the GEM system is immature and we need to work together to explore how to develop GEM China into the Brilliant achievements as U.S. NASDAQ.The study of reason for high IPO underpricing began from the 70s in 20th century, we can divided it roughly into two stages.The first stage is in the traditional framework and theory of finance, under the premise of the Completely effective secondary market, the IPO underpricing is due to the participation of the parties deliberately suppressed IPO issue price.This theory represents the theory of early scholars to explain high IPO underpricing.The second stage is in the behavioral finance theory and the framework of cognitive biases and psychological bias for investors, IPO underpricing is due to the error location of the value of the stock in secondary market. In the framework of traditional finance, high IPO underpricing is mainly because of the asymmetric information theory point, the other small part is based on symmetric information theory perspective.IPO underpricing in China is much higher than the average in other countries, this problem has aroused the attention of Chinese and foreign scholars, they found that the course of development in the stock market and government regulation is different from foreign market, Western theories of high underpricing is not the explanation entirely suitable for the Chinese market.Some Chinese scholars propose some theory to explain the Chinese IPO underpricing, such as the theory of administrative controls, excessive speculation in the Chinese stock investors, and inside Trading or stock manipulation by large financial clients and institutional investors.For the IPO of Chinese GEM, it has some different rules from the motherboard, such as the requirement for listed companies is much lower, however, the risk aversion on the requirements of the GEM is much more strict,especially In the follow-up information disclosure and trading rules, such as the introduction of more stringent delisting system, more strict control for cash behavior of shareholders, the "third gear circuit breakers system " on the first listed day,and more stringent information disclosure system.We use the behavioral finance to explain the reasons for the high underpricing of GEM IPO in this paper. Specifically we analyzed it from three aspects:(1) inadequate response and overreaction.This theory suggests that investors have over-confident mood, they regard the new shares-issue of the GEM as good news, the appearance of other good news will strengthen the previous judge, resulting in over-reaction, and If there is bad news, investors will go to downplay or ignore this bad news, not to correct the previous judge, resulting in a lack of reaction to bad news.(2) state of mind and frame anchoring dependence.The theory suggests that the GEM investors have a deep impression in the mind that shares on the first day have a high-yield, so they do not want to dig more information, even if there is bad news, they also hold an indifferent attitude. It is often used by underwriters, they issue good or bad news in different ways of expression in order that they enhance good news and dilute the bad news.Therefore, it is easy to form a framework of non-rational investors rely.Based on the above analysis, We selected the 168 companies listed on GEM as sample data, and use the data to make multiple regression analysis by software Eviews5.0.Based on literature review and theoretical analysis,we selected the explanatory variables:IR and six explanatory variables:price-earnings ratio distribution (PE), issued shares of scale (Scale), ROE growth (ROEI), changing-hands rate (Turnover), the success rate (Lotrate), average yield of the broader market in five days before issuance (Yield).From the empirical results, we can draw the following conclusions:issue size and growth rate of return on net assets have no significant effect to the underpricing of new shares,while the other four variables have a significant impact on the dependent variable. Therefore, the results show that investor sentiment have a major impact over yield. Early high underpricing of IPO form a framework of non-rational investors rely, that the purchase of new shares can be obtained high yield without risk, while allowing investors in the IPO market over the favorable response, while the lack of negative reaction, so irrational frenzy behavior of investors in the IPO market is an important reason for unreasonable excess returns of new shares. From the results of theoretical and empirical analysis, we draw two policy proposals:put forward the correct guidance and education to individual investors, and the first day of GEM "third gear suspension system " has its unreasonable aspact and pointed out how to correct it.In this paper, there are three innovations:First, the study object is GEM, which was set up less than two years.Empirical research on China's GEM IPO is also much less.Second, We introduced ROE growth rate as a measure of the GEM variables.Third, the introduction of the average rate of return on broader market in five days before the IPO as a new quantitative indicators reflecting investor sentiment.This article is also inadequate in the verification of the reason for GEM IPO high underpricing is investor sentiment, the general practice is to test whether the sample data is long-term weakness, however, the GEM market is a very short period since set up.The sample data listed above one year is a very small amount so that it can not be a representative sample of data. |
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