A Study On IPO Underpricing In China 's A - Share Market

IPO underpricing has been a widespread phenomenon in the global stock market. IPO underpricing has attracted the attention of many scholars because it goes against the Efficient Market Hypothesis(EMH) and reflects the lack of efficiency in the stock market. Western scholars has worked hard to find some reasonable explanation for IPO underpricing. Some famous theories have been made, such as asymmetric information theory, market signal theory, underwriters’ risk aversion theory, ownership dispersion theory, herding theory, investment sentiment hypothesis and so on, which provide explanation from different perspectives. Chinese stock market has started to develop in recent years.Because it is not mature enough, these theories can not fully explain IPO underpricing in Chinese market.It still requires more research and improvement.My research has taken A-share listed companies from1992to2012as samples and focused on the primary market and the secondary market to study the factors of IPO underpricing in the A-share market. In this context, analysis of variance is used to verify that the approval system and pricing methods of new-stock-issue have a significant impact on IPO underpricing. Then multiple linear regression equation is used to find out those factors affecting IPO underpricing in the primary market and the secondary market factors. The conclusion is that the issue size, issue expense rate, PE ratio, the turnover on the first day, market trends and month-average PE ratio in the market have a significant relationship with IPO underpricing. I also find that the explanatory power has increased under new approval system and pricing methods. Finally, I use a simple formula to separate the primary market mispricing and the secondary market mispricing and test their proportion in IPO underpricing. I find that the primary market mispricing decreased under new pricing methods.This research confirms that China’s A-share market IPO underpricing still exists. New approval system and pricing methods help to reduce IPO underpricing rate and the primary market mispricing,which improves the efficiency of the primary market.