First-day Limits,Investor Sentiment And IPO Underpricing

Initial Public offering(IPO)refers to the behavior of selling shares to the stock market for the first time.At present,the theoretical system of IPO underpricing by western scholars is mainly divided into two categories: One is based on the phenomenon of information asymmetry among the primary market participants,holding the view that IPO underpricing is rooted in the low issue price of the primary market;The other one is based on the perspective of behavioral finance,they believe that irrational investors are susceptible to emotional contagion,leading to overheated pursuit of stocks in the initial stage of listing.On November 30,2013,CSRC issued the opinions on promoting the reform of the new issue system.According to the implementation regulations of the Shanghai and Shenzhen stock exchanges after the issuance of the opinions,the first-day closing price of new shares shall not be higher than 144 percent of the issue price and shall not be lower than 64 percent of the issue price.However,after the implementation of the policy in 2014,most new shares' closing prices reached the upper limit of 144% on the first day of listing,and the prices keep going up in the subsequent transactions,the cumulative increase was much higher than the levels before the reform.This paper believes that after the implementation of the first-day rise and fall of new shares in 2014,the issuing price of China's primary market will be lower and the initial trading price of the secondary market will be higher.Under the combined effects of the two sides,IPO underpricing rate will be significantly increased.In order to verify our conjecture,this paper took all 1,898A-shares listed from 2009 to 2017 as samples,adopted stochastic frontier analysis and linear regression model with interactive effect,explored whether the degree of IPO discount issuance was significantly deepened after the implementation of the new policy,and whether the correlation between IPO underpricing rate and investor sentiment was significantly strengthened.The research conclusions of this paper are as follows :(i)Before the introduction of the first-day rise and fall of new shares policy,only small and medium-sized plate' issue price has a random upper boundary;After the introduction of the policy,the issuance prices of the three plates all have significant random upper boundaries.The proportion of random error term in the total error term is significantly increased and the mean efficiency is significantly decreased.This shows that after the implementation of the policy,the issuing prices of the three plates are lower;Compared with its intrinsic value,the issuing price has a more obvious downward deviation trend.(ii)After the new policy introduced,the correlation between IPO underpricing rate,market sentiment and individual stock sentiment was significantly enhanced.In the sectoral test,the correlation between IPO underpricing rate of information technology service companies and market sentiment was significantly enhanced,and the correlation between IPO underpricing rate of manufacturing enterprises and information technology service enterprises and individual stock sentiment was significantly enhanced,which means that the "screening" mechanism of investor sentiment in different industries has showed up after the implementation of the new policy.Based on the research conclusions,this paper proposes the following policy suggestions:(i)Enhance the risk awareness of investors and guide investors to make rational decisions;(ii)Improve the information disclosure system and severely punish insider trading;(iii)Promote the registration system reform in time,for the purpose of adapting the development of the capital market.