Study On Hot Issue Of IPO Market

IPO underpricing and poor long-term performance have always been two of the most popular topics ever, however, most studies don’t have the same conclusion because of different issue system, sample selection,model construction or some other reason. Also, the research on hot issue-another IPO problem is rare, this article focuses on this to make up for the lack of previous studies.This article uses initial public offerings data on Shanghai and Shenzhen stock market between 2006 and 2014, to discuss hot market, IPO performance and characteristics of IPO firms. It can be divided into three parts. The first portion is main to analyse the relationship between initial price run-up and hot issue; The second portion is to analyse the relationship between subsequent underperformance and hot issue. The third portion is to explain the quality differences and characteristics of firms in hot and cold markets.The results suggest that IPOs in hot market contributes to initial performance,but have no benefit to long-term returns, even turns out to be an opposite situation. In the meantime, both initial price run-up and subsequent underperformance are more dramatic for stocks issue in hot market. Also, the fundamental factors of IPO firms will contribute to hot issue. It shows that hot market IPO firms are smaller, have higher leverage and lower growth ratio.For sentiment investors, what important is to be rational and prudent, paying more attention to fundamentals of IPO firms in case of being fooled by issuers’ technical manipulation.