Research On IPO Underpricing In China Stock Market Under Book-building

IPO underpricing is the phenomenon that the first day's trading prices in the secondary market are systematically higher than the offering prices.It is one of financial anomalies,and has been the concerns of stock market.There is singularly high IPO underpricing in China stock market since implement book-building.High IPO underpricing,which causes excess returns and distorts allocation of financial resources,seriously affects efficiency of capital market.The article attempts to analyze the formation mechanism of High IPO underpricing,and provide references for regulating stock market,increasing allocative efficiency and improving IPO system.The classic theories consider that IPO underpricing is derived from intentional discount in primary market and emotional premium in secondary market.From the double angles of new stocks' offering prices and trading prices,the article analyzes IPO underpricing via including all factors from primary market and secondary market as a whole,and it successfully decomposes IPO underpricing into two kinds of effects respectively from primary market and secondary market.Then,based on sample data of1532 new stocks from 2005 to 2016,the article empirically studies high IPO underpricing in China stock market.The empirical steps are as follow: Firstly,uses stochastic frontier model to analyze offering prices and trading prices of new stocks;Secondly,uses two-tier stochastic frontier model to analyze IPO underpricing.And the conclusions are as follow:(1)Offering prices of new stocks have remarkable lower boundary.Both offering scale of new stocks and subscription of inquiry object are positively correlated with offering prices,and on the contrary,underwriters' reputation is negatively correlated with offering prices.(2)Trading prices of new stocks also have remarkable lower boundary.Investor sentiment,market demand and environment of same same industry are all positively correlated with trading prices.(3)Effects from primary market and secondary market both obviously impact IPO underpricing,but effects from primary market impact IPO underpricing more than effects from secondary market.Relative to effects from primary market,effects from secondary market is the major reason of high IPO underpricing in China stock market.