Chinese Ipo Underpricing Empirical Research

IPO under-pricing refers to the phenomenon that the issue price is significantly lowerthan the IPO first day closing price. A large number of empirical studies have shownthat the IPO under-pricing is almost ubiquitous in the world, and the degree ofChinese market is even serious. Enormous IPO under-pricing lower the efficiency ofpublic financing, seriously affect the function of resources allocation of the primarymarket, and thus affect the stability of the secondary market.The paper firstly reviews the literature about the study of capital market IPO underpricing and finds the literature of China’s GEM is rare. Through the analysis of theyield of China’s GEM in first day, we obtain the conclusion that the risk of GEM’sIPO market is extremely high. After then, we explore the institutional factors thataffect rate of return of the the first day of through the analysis of the IPO system ofChina’s GEM, and point out its inadequacies.The paper selects the corporations which take the IPOs in GEM from Oct. 31 2010 toApr. 1 2011 as the sample and makes a series of assumptions. By the methods ofstatistical description, correlation analysis and multiple linear regression, some furtherstudies are made as to whether the factors causing IPO under pricing are notable andsome pertinent suggestions on reformation of capital market are taken.Through the analysis above , the paper indicates that some secondary market factorsand issuing/pricing institution factors are strongly approved on IPO under-pricing.Aiming at this, we take some policy suggestion such as strengthening marketsupervision, raising the efficiency of pricing, increasing the varieties of investmentand urging the education of the investors.