Ampirical Analysis On Effect Of Investor Sentiment On China’s A-share Market Underpricing

IPO underpricing phenomenon has been a mystery in finance, at the same time it is alsothe world securities markets and long-term and widespread phenomenon, a lot of scholars athome and abroad pay attention to this phenomenon, and also propose a lot of theories toexplain this kind of strange phenomena, such as the theory of asymmetric informationdistribution system. With the development of behavioral finance in recent years, more andmore scholars begin to use behavioral finance to explain the phenomenon of IPO underpricing.In this paper, we will study on the IPO underpricing phenomenon in the eye of the investorsentiment.Traditional financial theory suggests that the non-market IPO system, excessivegovernment intervention, as well as information asymmetry are the main reasons of the IPOunderpricing. But these factors are no longer the main reasons of the IPO underpricing sinceChina’s stock market continues to shift to market-oriented direction, and the completion of thesplit share structure reform in stock market. Our issue of the pricing system has beenrationalized, but IPO underpricing stays still high.From this point of view we can verify theeffect of investor sentiment on IPO underpricing.The article introduces the the IPO underpricing theories first, as well as domestic andforeign literature and research progress, and problems exist. Then I do empirical research oninvestor sentiment on IPO underpricing. I chose to use turnover rate on the first day, the ratioof market value and the book value, the consumer expectations index ratio as the indicators ofinvestor sentiment; company age, the number of shares issued, the success rate as the degreeof asymmetric information. I have collected all of IPO stocks from2006to2012in China’sA-share market, and do two regression models with no investor sentiment indicators andinvestor sentiment indicators, and analyzed on the regression results. Through the research,we find that, compared to the theory of asymmetric information and special systemarrangements hypothesis, the theory of investor sentiment explains the IPO underpricingphenomenon from investor psychology and behavior better.Finally, according to the results of empirical research, we suggest various policies fromthe angle of securities regulators, individual investors, issuers. The efforts of the parties, isdesigned to reduce China’s IPO underpricing level, and to meet the basic law of the marketand give better play to the functions of financing.