Study On Investor Sentiment And Market Reaction Of Private Equity Placement

May17,2006officially promulgated the "initial public offering and listing management approach" does not make any demands on the performance of private equity placement of listed companies, resulting in "private equity placement" which was not previously familiar to all investors suddenly become a "hot" topic, the listed companies use private equity placement to refinancing became more frequent. It is because of low issue requirements, resulting in private equity placement of listed companies were not all good. Meanwhile the traditional financial theory is based on the assumption that investors are rational, but the majority investor is small investors. They are emotional rather than rationality. Previous scholars’study mainly on the basis of the assumption of rational investors, which is not suit for actual. We need conduct in-depth research based on irrational assumption. This paper mainly studies the relationship of investor sentiment and the market reaction of private equity placement through1,011samples (from2006to2013), based on irrational assumption and behavioral finance theory. Firstly, construct an investor sentiment index (index) using a principal component method though seven single investor sentiment subjective and objective quantitative metrics. Secondly, we called the announced day of private equity placement as event day,5days before event day and5days after event day as the window period, we calculated abnormal returns (CAR) by using a market model as a private equity placement announced reactions quantitative metric. Finally, through regression analysis between the investor sentiment index and abnormal returns (CAR), we get the following conclusions of this paper:(1) All sample analysis showed that investor sentiment index and declared private equity placement market reaction (CAR) had a positive correlation;(2) All samples was divided into two groups, high investor sentiment group and low investor sentiment group. In high investor sentiment group, investor sentiment index and private equity placement market reaction (CAR) had a positive correlation; In low investor sentiment group, investor sentiment index and private equity placement market reaction (CAR) had a negative correlation.(3) Further grouping shows that when investor sentiment is high, investors prefer listed companies which had on-financial trouble、asset injection and large shareholders to participate in the private equity placement; but when investor sentiment is low, there may be other factors not taken into account so that the regression analysis was not significant.This paper enriches the investor sentiment and the related study of private equity placement, it can provide realistic evidence for small investors participate in the private equity placement and choosing the right investment, it also can provide theoretical and realistic evidence for listed companies to understand the preference of investors.