The Price Behavior Of A-Share IPOs In China

IPO price behavior refers to the price changes from listing to the after-market trading. Generally, there are two anomalies in this process:IPO under-pricing and long-term underperformance.IPO under-pricing is a popular phenomenon widely in various capital markets in the world, which is always regarded as a difficult area in financial research. So far, many researchers have contributed and drawn many conclusions based on different theories. The IPO market is the source of stock market,which is related to the efficiency of the entire stock market. The research of IPO price is divided into two directions:theories based on asymmetric information and behavioral finance. Many evidences have been proved that theories based on behavioral finance are persuasive than theories based on asymmetric information. The meaning of this article lies in:By analyzing the IPO underperformance phenomenon in Chinese stock market, to find the main factors influencing the IPO underprcing and the main reason which causes IPO to be underpriced,then to put forward the corresponding suggestions to reduce the degree of IPO under pricing.Based on previous studies and behavioral finance theory, we analyze the causes and manifestations of irrational behavior of investors on Chinese stock market. Considering irrational investors can participate in the primary market and secondary market,we analyze the equilibrium of the IPO market when they are in. I conclude that high level of initial returns of IPOs in China is primarily explained by the behavioral biases of optimistic investors. The optimistic investors denote incorrect beliefs about the long-term expected value of an IPO share and pay for it much higher than its fundamental value. Finally, we analyze firstly factors influence on IPO under-pricing by sampling China’s SME and GEM stock markets. Applying sequential sequent regression approaches to determine the main reasons IPO under-pricing, the results show that the factor of heterogeneous expectation affect obviously on IPO under-pricing in both markets. After the reforming of IPO system, the IPO pricing is greatly improved and the first day of IPO underpricing rate is somewhat decline.