Empirical Study On IPO Underpricing In The Chinese Stock Market

IPO underpricing is a word-wide phenomena. Not only it exists in developing countries, but also exist in developed countries. Compared with other countries, the Chinese stock markets have the highest IPO underpricing rate, it affects the healthy development of the stock market and even threaten one's economy. What caused IPO underprcing and how to minimize this negative effects are the main objective of the essay.In this essay, we firstly introduce related IPO underpricing theories. Then, we review the system evolution of the Chinese stock market. After collecting1113 IPO data from Shanghai composite stock market and Shenzhen composite stock market from Jan 2001 to Dec 2012, we are able to do a series of tests. For example, descriptive date, correlation analysis, multi-factor linear regression and so on. After doing a series of empirical analyses, the result shows that irrational behaviors of investor's and information asymmetry are mainly responsible for IPO underpricing. System evolution indeed decreases IPO underpring. What is more, based on previous studies, we take a further study on the IPO underpricing between Shanghai and Shenzhen stock markets. The result shows the same, and Shanghai stock exchange has a higher IPO underpricing than Shenzhen stock exchange.