An Empirical Analysis On The Relationship Between Attention And Underperformance Of IPOs

The long-term underperformance of IPOs, namely Initial Public Offerings, has always been one of the three hot issues in the areas of IPOs research. As for our country, the history of stock market is as short as only twenty years; therefore, the relative research on the long-term performance of IPOs means a lot to improve the efficiency of our IPOs market. The factors which cause the IPOs underperformance are various, including risks, characters of the company, interests before publishing, the deviation from investors and so forth. In this paper, we make a research on the relationship between the public attention and underperformance of IPOs in behavioral finance terms.This paper introduces the relative theories on underperformance of IPOs at first, and gives a summary and comment on this phenomenon at the same time. After that, the paper illustrates the underperformance of IPOs in behavioral finance terms, including introducing the theory of attention and explaining how does it affect the performance of IPOs. In the empirical analysis part, the paper chooses280pieces of stocks which got listed on Shanghai and Shenzhen stock market between June in2006and August in2009as the sample, and makes a research on their performances after issuing in24weeks. Firstly, the paper makes use of CAR and BHAR models to measure the interest to improve the phenomenon of underperformance of these new stocks, and at the same time, makes a statistics of attentions by counting the searching volume in Baidu. And then, the paper makes a further research on the relationship between attention and underperformance of IPOs by using Fama&French three factors model. We establish a investment model and makes a judgment on whether attention can be considered as a factor which affects the performance of new stocks by comparing the regression results between common three factors model and an advanced model with another new factor. The final result of this paper is, firstly, in the24weeks after IPOs, the value of CAR is-0.2183, and the value of BHAR is-0.3148, these two numbers show the performance of IPOs is much weaker than that of the market which proves the phenomenon of IPOs underperformance; secondly, the IPOs stocks earns a lot of attentions during the course of publishing; thirdly, attention can be considered as a factor which affects the underperformance of IPOs. According to the results above, we can say that the new stocks in our country do have series underperformance problems which shows that the IPOs market in our country has a low efficiency, and this harms the interests of investors and also gives a bad effect on the efficiency of allocation of resourses.Finally, the paper gives some advices on how to improve the efficiency of IPOs market which includes improving the quality of listed companies, perfecting the system of stock publishing, perfecting the public of information in IPOs market, standardizing the behavior of investment institutions and individuals and so forth.