The Pricing Efficiency Of IPO And The Source Of New Shares Falling On Debut During The Seventh IPO Restart

The initial public offering (in short, IPO) refers to the behavior of the listed corporations selling their stocks in the securities market for the first time. All over the world, there’s a phenomenon that the closing price of the stock on the IPO’s day is significantly greater than the issue price in the stock market. Since Ibbotson (1975) proposed the concept of the IPO’s underpricing which has been described this phenomenon and has been called the "mystery", there has been a lot of related research on the new shares after the IPO. These researches mainly can be divided into two kinds:The first kind according to the information asymmetry theory finally got conclusion that the stock in the primary market been low trend leading to underpricing; another type explain why trading price rise by the analysis irrational behavior and heterogeneous anticipation of the secondary market investors. The former mainly utilized the micro-information economics theory, the latter mainly used the behavioral finance theory.While the IPO’s underpricing is still controversial, falling on debut of new shares take place in China capital market, especially the problem is more serious on small and medium-sized board. In order to explicit the theme, The writer made "June2009to31December2011on small and medium-sized board of inquiry during off-line new shares" as subject of the research. In this study there were374new shares,49new shares fall on debut. Falling on debut of new shares caused many people to focus on the IPO regime reform. Author’s original writing intention is to find the evaluation, which has a empirical support, about the on-going issue of the reform.In order to objectively appraise reform, the author point out four questions and related two themes for the research content.The four questions were listed:Firstly, whether pricing is systematic high in the primary market? Secondly, whether the IPO reform as an external factors is leading to the deviation from pricing?Thirdly, whether the two stage of new shares reform experience in effect is different?Fourthly, whether falling on debut of new shares mainly comes from the primary market or the secondary market or both?Whether the underpricing or falling on debut of new shares is not accorded with efficient market hypothesis, it is necessary to study the market efficiency, namely IPO pricing efficiency, through calculating the efficiency we can evaluate the ability of the market in resource allocation. we divided into two steps to study the IPO pricing efficiency,:(1) choosing appropriate efficiency’s measure;(2) establishing appropriate model for quantitative research.Existing evaluation standards of IPO pricing efficiency has two kinds:relative standard and absolute standard. On account of the concepts of efficiency analysis on economics and finance, the author comments the rationality of two kinds of standard. At the same time the author points out that the two kinds of IPO pricing efficiency standards are not suitable for studying on the seventh restart IPO pricing efficiency, so proposes suiting IPO pricing efficiency standard. The author thinks that uncontrollable random factors, which is normal distribution, is inevitable in any issue system, so vi; should not be seen as the causes of pricing inefficient factors.(p*+vi) refers to the efficient issued price,p*represents stock intrinsic value. In this article, we use the boundary of the stochastic frontier model value to estimate the intrinsic value of stock. Owing to E(vi)=0, so E(p*+vi)=E(p*), Whether (where p0refers to the IPO price) is positive or negative is the performance which is lacking of efficient. So we use its absolute value on behalf of the degree of deviation from the efficient price.If the IPO pricing process is seen as the "production" process, then we put all the elements representing the value of the company, the final "production" is the valuable stock. However, due to the issue of new shares to institutional and market imperfections, resulting in the product manufacturing process efficiency less than100%, the products can not fully meet the specifications. Namely, the stock of the "production" will be under the influence of unilateral error disturbance in the production process, which case does not meet the OLS assumption, in fact, this disturbance can be decomposed into pairs of residuals, the stochastic frontier analysis method, which is born from production theory, is very suitable on this occasion. In this paper, we research IPO pricing efficiency and the falling on debut of new shares making use of the stochastic frontier model.The author proposes four questions. firstly, we don’t consider the specific sources of external factors, under the circumstances, whether the deviation is caused by unilateral error, that is, whether unilateral error is statistically significant. Then, specifically considering the deviation from the cause, whether by the distribution system defects taking into account the characteristics of the current round of reform in two stages, we add a dummy variable to analysis whether the two-stage unilateral error are statistically significant differences. we analysis that whether48shares falling on debut is due to the existence of the unilateral error in the primary market and secondary market.According to the analysis of the empirical results, Corresponding to the four questions above, we got The following conclusions of this article:①There is the systematic deviation of the public price at this round of new shares public offerings market.②IPO reform does lead to a high price, and the second stage of the new shares reform causing inefficient unilateral error is smaller compared to the first stage, according to the IPO pricing efficiency presented in this paper, I think that reform initiatives to improve the efficiency of IPO pricing is valid.③Leading the cause of the new shares falling on debut is not only from security primary market, but also from the secondary market.This paper has innovation points embodied in the following three points:(1)Redefine IPO pricing efficiency measure standard according to the actual background. This study points out limitations of existing literature standard of efficiency and puts forward the appropriate IPO pricing efficiency definition.(2) In this paper, we quantitative analysis issue price, which has been influence by new shares issue regime. According to the empirical results, we give an objective evaluation of the second stage of new shares reform.(3) Finding out the source of falling on debut of new shares. Separately, we research the pricing deviation of the primary securities market and the secondary securities market.