Empirical Study On Investor Sentiment And IPO’s Abnormal Initial Return Of Listed Chinese GEM Companies

Empirical study on investor sentiment and IPO’s abnormal initial return of listed Chinese GEM companiesIPO’s abnormal initial return, which means the closed price is much higher than the issuing price on the first day of its listing, is widespread in the stock market both at home and abroad. Since1970s, it has aroused a large number of scholars’ interest. The study is mainly focused on two aspects:First, due to the asymmetric information known by issuers, underwriters and investors, the stock is underpriced in the primary market. So on the first day of listing, the price will rise and thus the IPO’s abnormal initial return emerges. The other study lies in the overreaction of investors on the new stocks.IPO’s abnormal initial return is more prominent GEM, since it was launched in October2009. The closed price has repeatedly hit record highs. The average IPO’s abnormal initial return of the first28companies listed on GEM is106.23%. At the end of2011, the average arithmetic rate of return of the281stocks listed on GEM is37.92%. A large amount of money is used to buy new shares, which is not conducive to the capital optimization allocation. And investors are overly concerned with whether the purchase is successful, while ignoring the company fundamentals, resulting in excessive price volatility after the IPO and leading to risks.This paper is mainly focused on the IPO’s abnormal initial return and trying to explain China’s IPO’s abnormal initial return on GEM from the perspective of investor sentiment on the secondary market.Firstly, a review of the study on IPO’s abnormal initial return both at home and abroad is made; Then in Chapter Three, there is an overview of the investor sentiment theory and China’s GEM IPO initial return, and from the perspective of investor sentiment, there is a brief explanation. In Chapter Four, a model of investor sentiment is established, from which the influence of investor sentiment on IPO’s initial return is theoretically proved. In Chapter5, by selecting six investor sentiment proxy variables and through principal component analysis, IPO’s investor sentiment index on GEM is created as a measure of the investor sentiment. What’s more, a multiple linear regression model is created, where the IPO’s initial return on GEM is the explained variable and investor sentiment index, Information asymmetry proxy variables and underwriter reputation are the explanatory variables. The results show that coefficient is significant, which owes strong explanatory power to IPO’s initial return. According to the above-mentioned theoretical models and empirical studies, Chapter6is the conclusion part.