Effect On Investor Sentiment On IPO Cumulative Abnormal Returns In China

Since 2014 China's IPO market restarted,there has been a lot of new policies implemented in the IPO market,including the restriction of IPO first-day returns.Both Shenzhen Stock Exchange and Shanghai Stock Exchange has restricted the IPO first-day returns within the 64%-144% of the issue price.The intention of this policy is to sober the overly optimistic investor sentiment and make the price of the newly issued stock more rational in the secondary market.But the reality is that most of the new stocks hit the limit up in the first day of offering,and continue the trend consecutively for several days.The total returns during the hit-up is abnormally higher than new stocks issued before the policy.In order to investigate this IPO abnormal phenomenon above,based on related theory,we raise the concept of IPO cumulative abnormal returns(CAR),which can be used to measure the total returns during the abnormal consecutive hit-up.We investigate the influential factors behind this phenomenon especially from the perspective of investor sentiment and observe the effect on investor sentiment on IPO cumulative abnormal returns.The main sample we use is these new stocks issued between 2014 and 2016,compared with the new stocks issued between 2009 and 2012,and we find that investor sentiment become more optimistic under the new regulation,which indicates the failure of the new regulation.We think that the more optimistic investor sentiment is a direct influential factor to the abnormally high CAR.In order to verify the hypothesis,we select several indictors to represent market related investor sentiment and stock related investor sentiment respectively,then construct an econometric model and conduct empirical analysis.The empirical results show that investor sentiment influence IPO cumulative abnormal returns significantly,which also means that investor sentiment contribute a lot to the phenomenon of consecutive hitting the limit-up.On the other hand,we can see that there are still too many irrational factors affecting the effectiveness of the IPO market of Chinese.Based on the overall findings of the paper,we bring up several suggestions to build a more adequate and more efficient IPO market.