The Research Of Relationship Between Investor’s Sentiment And IPO Underpricing In The GEM Of China

The growth enterprise market (GEM) of china was established more than four years, with it’s bumpy road of development and the frenzied speculation at it’s Beginning days. The average IPO underpricing rate of the36companies, listed on the first day in2009, is92.7%and up to209.7%, the average price-earnings ratio is68.55at the starting times, which up to111.5times and the minimum is32.74times, market speculation seriously. The three-year average rate of Chinese GEM IPO underpricing is40.38%, while the NASDAQ market average IPO underpricing during1980-2013is18.4%, according to Jay R. Ritter statistics. compared to the mature markets like the United States, the Chinese GEM is still in construction period. China’s GEM underpricing trend tends to decrease, but still higher than the developed markets abroad. This article analyzed China’s IPO underpricing in-depth and inspect them with empirical research, making a theoretical contribution to improve our GEM system, the model of development, the protection of the vital interests of investors and small and medium enterprises, and standardize the optimal allocation of social resources.Firstly, this paper comparative analysis on the characteristics of IPO between China’s GEM and the American NASDAQ market, as a result. we fund some issues existed in China’s GEM, such as the high side of the GEM IPO underpricing, the smaller size of the market, net profit per share growth slowly and other issues. In addition, after compared the turnover rate of the first day of listing in each country’s GEM, China’s GEM turnover is more frequently, reflecting severe market speculation and that IPO underpricing phenomenon is caused due to investor sentiment. Secondly, we use379listed companies’IPO date since October30,2009opening to March12014for samples to do empirical research and found that IPO underpricing rate is effected by the listing day’s turnover rate and PE significantly, in addition, the same to the issue size and market success rate in Distribution market. Furthermore, most investors are retail investors in China’s stock market, due to personal preference, information asymmetry and investor Irrational behavior, I believe that the interactive affection between the investor sentiment in the IPO Distribution market and the Secondary markets and the GEM IPO underpricing levels were significantly, for this problem we make empirically test. Finally, against the relationship of the pre-and post-IPO underpricing, we use IPO underpricing simultaneous equations model for empirical testing. Concluded:a, China’s GEM IPO underpricing is effected by investor sentiment in issuance and secondary markets significantly; b, the impact on the two markets have interactive effection; c, IPO underpricing characted of "demonstration effect", that is, pre-IPO underpricing phenomenon will cause the investor sentiment in the next issue of the IPO, and produce IPO underpricing.In this paper, on the basis of previous studies on IPO underpricing theory, we applied them to the growth enterprise market of china. most researchers’ research only against the factors in issuance market or the secondary market, the author not only analyze the effect of the emotional impact on IPO underpricing in the GEM distribution market and secondary market investors, but also the established multiple linear equations for the two markets’ investor sentiment and made empirical research to their interactive impact; In addition, I believe that IPO underpricing phenomenon has character of "Contagion effect", and established model equations to test IPO underpricing infection route.there are many factors effecting IPO underpricing, this article just form the respect of the influence of investor sentiment on market, although controlling a number of other factors, such as circulation, industry, the issue price, but there are many other external factors that could not be controlled, for example, national systems, policies, etc., so there are still some flaws in this paper. Due to personal professional level limited, the studies will further improved to be late.