Under-pricing Rate,First-day Price Limit And Short-term Yields On New Shares

Investors in China's a-share market have long been keen to hype new shares,and there is significant IPO underpricing in the new issue market.A large number of investors,with the expectation of obtaining high returns,participate in the speculation of new shares.They irrationally invest in new shares with huge gains in the early stage,but suffer huge losses in the process of stock price correction.This study focuses on the phenomenon that investors hold stocks for a short period in the new share market,and combines with the fact that the underpricing rate of new shares on the a-share market remains high.By studying the relationship between the underpricing rate of new shares and the short-term return rate after the new shares open the trading limit,it tests whether the underpricing rate has a predictive effect on the short-term return rate of new shares.The regulated new share issuance market is conducive to protecting the interests of investors.In 2003,Shanghai and Shenzhen Stock Exchange introduce regulations that limit the highest price declaration during continuous auction period for the first day of the IPO company's stock to 144% of the issue price,and limit the lowest price to 64% of the issue price(Hereinafter referred to as the "first-day price limit policy").The first-day price limit policy significantly affected the trading pattern in the new share issuance market,which caused the closing price of most new shares to reach the daily limit quickly.The large demand for new shares from investors who failed to obtain new shares in the IPO application made the new shares enter the continuous trading limit stage,and the IPO underpricing rate was significantly increased compared with that before the implementation of the policy.This paper takes a sample of 1879 IPO(initial public offering)companies in China's A-share market from July 2009 to December 2017,and empirically studies the effect of initial price increase on the short-term yield of new shares,and investigates whether the underpricing rate at the early stage has a predictive effect on the short-term yield after opening the trading limit.Secondly,the first-day limit policy is added into the model to test whether the limit policy makes the trading demand overflow at the initial stage of IPO and improves the turnover rate after the limit is opened.To examine the interaction between the first-day limit and the IPO underpricing rate,and to test whether the implementation of the first-day limit has an impact on the relationship between the underpricing rate and the short-term yield of new shares.In the part of robustness test,we consider the influence of market return rate on underpricing rate and short-term return rate of new shares,and investigate the influence of price-earnings ratio control policy on short-term return rate of new shares.The study found that the stocks with higher IPO underpricing rate at the initial stage of IPO had a weak performance in the short term after opening the trading limit,and the holding period yield in the short term after opening the trading limit was negatively correlated with IPO underpricing rate,and there was a trend that the longer the holding period,the lower the yield.It indicates that investors who fail to apply for new shares in the initial stage of IPO may suffer losses if they buy new shares in the secondary market after opening the trading limit.Moreover,those new shares with a larger increase in the early stage usually bring greater losses to investors in the subsequent price adjustment stage.The demand spillover effect brought by the first-day price limit policy improves the turnover rate of new shares after opening the limit,which helps investors participate in the speculation of new shares and weakens the aforementioned negative correlation.