The Research On The High Returns Of IPO In China

This paper is based on Behavioral Finance Theory exploring the phenomenon of excess returns of the first day of IPO. Combined with an empirical test of market data, I found that the new shares were issued during that although prices expected to equilibrium price is lower than the secondary market, but they thought their income was higher than the losses, and the combined treatment of gains and losses account, made the issuer to accept the pricing of underwriters; investors were overconfident of new shares, and high investor sentiment, excessive pursuit of new shares driving up the first day of IPO closing price, a direct impact on returns of the first day of IPO. Investor sentiment is positively related to the returns of the first day of IPO.Because the high returns of the first day of IPO is not only the peculiar to the domestic stock market, but also there has been abroad. This paper attempts to identify and understand issuers, underwriters and investors in our stock market to improve the low efficiency and immature of the stock market, and hope through research to make appropriate recommendations to improve the current situation.The current Behavioral Finance Theory has not yet formed a complete system, and the different theories proposed by scholars, scattered. Major achievements are: prospect theory, overconfidence, overreaction and underreaction theory, behavioral asset pricing model, behavioral portfolio theory. Issuers, underwriters and investors may apply the theoretical basis, respectively:prospect theory, anchoring and adjustment bias, overconfidence and representative bias.Specifically, the issuer will determine how to treat the issue price to determine the possible changes in the wealth generated, which can account for prospect theory to explain the behavior of the issuer decisions. Investors are often too much faith in the correctness of their judgments and overestimate their chances of success, the success is attributed to their ability, and underestimate the effect of chance in which to play, so will lead to overconfidence. Investors in overconfidence over-reliance on the collected information, and investor overconfidence makes all kinds of information in the selection, special emphasis on those who can enhance their self-confidence of the information, while ignoring those of their faith unfavorable information. Investors in the case of uncertainty will focus on one thing and another something similar, and to infer something similar with the second place. Investors will assume that the future pattern of similarity with the past and seek a familiar pattern to make judgments, and do not consider the probability of the causes of this pattern, investors often have such representative bias. The noise traders will make decisions based on certain signals, and these signals are actually nothing to do with the true intrinsic value, only the information that investors in the processing of the signal, the output process the deviation, or the signal itself is wrong.The empirical part in the paper:For the issuers, from January 1st in 2005 to the end of 2010 there are 729 companies completed the initial public offering as a sample, try to use prospect theory to explain IPO Underpricing in our country; underwriters, from the beginning of 2005 to the end of 2008 initial public offering as samples, a total of 79 samples to test whether the underwriters with the anchoring and adjustment effect, and attempts to explain behavior of underwriters in underpricing of IPO; investors, to select the 2005 to 2010 initial public offering of stock as the sample, excluding missing data. A total of 708 shares of IPO, tests the relationship between investor sentiment and the returns of the first day of IPO. Final conclusion has been placed at the beginning of this section.Based on the conclusions, recommendations can be involved for each subject in IPO process and the entire stock market. Finally, in this section I will introduce the main contribution to the paper. The main content of this paper is that issuers, underwriters and investors, through the Behavioral Finance Theory to explain the possible reasons for the high returns of the first day of the IPO, and then through the empirical study of stock market hoping to get some significant decision factors, then can make appropriate policy recommendations, as far as possible to improve the situation. The core portion of the paper is based on the issuers, underwriters, investors, and behavioral finance as the main theoretical explanation and empirical analysis.