Study On The IPO Pricing Efficiency Of Growth Enterprise Market Based On Zero Inefficiency Stochastic Frontier And Quantile Regression

After10years expectation, October30th2009saw Growth Enterprise Market’sopening in Shenzhen Stock Exchange, with both opportunities and challenges. Sincestarted, the whole market has exhibited underpricing phenomenon while going weakin the long run, even broke the offering price. The regulatory promulgated four stagesof IPO system reforming, aiming to promote offering prices set market-orientedly andinhibit new stock speculation. A key point before next stage’s reforming, is to evaluatethe efficiency of the past four stages, and identifying the true source of IPOunderpricing. Identifying whether IPO underpricing is caused by primary marketdiscount, or by second market speculation, will help point out the reforming direction.Furthermore, figuring out the correlation between offering price, adjusted initialreturn and their explanatory variables, will help enact effectual reforming measures.Hence this study will contribute to the reforming evaluation, and policy making.Initially, the author reviews current studies at home and abroad, finds that IPOsystem and investor sentiment are two key causes of underpricing. So the study willempirically test offering stage and listing stage, the two stages of IPO, separately. Theauthor then reviews China’s IPO pricing and rationing mechanism. Then come theinfluences of IPO system reforming on pricing and the listing-day trade rules of GEM.All those reviews provide theory and realistic research foundation.The study collects379listing enterprises since the inception of GEM as thesample. According to the reforming stage, the full sample is divided into4subsamples.After that, the author specifies the Zero Inefficiency Stochastic Model based onCobb-Douglas production function form. Markov Chain Monte Carlo simulation(MCMC) is used to estimate. After estimation, find that GEM has12.73%issuingdiscount on average. This number enlarged to18.26%in the fourth reforming stage.The probability of an issuing being efficient is51.4%in a statistical sense. Regressthe technical efficiency acquired from the last step with adjusted initial return. In viewof the only0.73%adjusted R square, the second market itself contributes the vastmajority of high underpricing, rather than the primary market discount. Further, theauthor specifies a quintile regression model adopting several variables, whichrepresent investor sentiment, heterogeneous beliefs and enterprise’s status, to identifyhow those variables acts on the adjusted initial return on different quantile level, andalso the coefficients’ trends across different reforming stage. The result shows, optimistic investor sentiment and high heterogeneous beliefs push chasing risingbehavior even seriously. And due to the reformed listing-day trade rule, the first dayinvestors stop holding high heterogeneous beliefs and eagerly profit taking, start tohold homogeneous rising prospect and grudgingly to sell. The study also finds severaldynamic correlations of other variables.At last it concludes. The author also puts forward several countermeasure andadvices, including enact to supervise principal underwriters’ rationing rights,strengthen investor education, transit to registration system, and strengthen early stagetransaction supervision.