Empirical Research Of IPO Real Abnormal Initial Return In GEM Market:Based On Behavior Finance

With the development of behavioral finance theories, a lot of scholars haverealized that the effects of underpricing in the primary market and overvaluation inthe second market may cause IPO’s abnormal initial return. In the current study, manyresearchers has focused on the two types of factors of asymmetric information in theprimary market and behavioral finance theories in the second market. However，usingthe comparative difference between the first closed price and the offer price can’treflect the true return,because it has neglect the low lottery rate. This paperresearches the forming process of IPO real initial return based on the process of IPOpricing and the first price formation.Firstly, this paper introduces the background purpose of this research and presentthe possible innovation ideas and deficiencies. It also has describes the researchresults from domestic and foreign. Secondly, we introduce the development ofbehavior finance, and analysis the sources and types of noise traders, as well as theimpact on IR. Thirdly，this paper analysis the four possibilities of the formation of IR,and tests the efficiency of IPO pricing by using stochastic frontier approach. Inaddition, we know people who purchase shares are reluctant to sell. At the same time,the optimistic investors and positive feedback traders in the second market will raisethe price aggressively, thus it can cause excess IPO’s return.According to above basis, I choose296GEM-share IPOs during2010-2014as asample for empirical study. The results indicate that the price of shares has aneffective upper boundary, that is IPOs did not deliberate underpricing in the primarymarket. We find that noise traders have positive effect on the first closing price, theIR and the RIR. In the past, asymmetric information, which has been seemedimportant do not have adequate explanation ability. It can instruct that the noise tradesare the real factors of high comparative difference.The RIR is affected by not only noise trades in primary but also their emotions inthe second market. Therefore, we need to improve the efficiency of capital market ofthe market, we must pay more attention to these noise traders.