Research On Investor Disposition Effect In Chinese IPO Market

Chinese IPO market has gradually become the world’s largest IPO market.Its development momentum has attracted countless investors,but more and more market anomalies and irrational behavior of investor have emerged.Disposition effect is a typical representative of irrational investor behavior.It exists widely in major stock markets around the world.Scholars have studied the cause,process and impact of its formation,leading investors to both market analysis and investment strategy choice more rational.In recent years,there have been few studies on the disposition effect of the Chinese IPO market,coupled with the stricter management of the IPO by the securities regulatory department,and the frequent implementation of the new policy,which will definitely affect investors’ behavior.This needs to be based on Chinese IPO market,combined with the development process of China’s IPO,to study investor disposition effect,and to prevent investors from suffering greater losses.This article selects all IPO companies listed between 2006 and the end of 2017.Due to the implementation of the price control policy on the first day of new shares at the end of 2013(this paper refers to it as the "IPO first-day price limit policy"),The total sample is divided into two parts for discussion.From June 2006 to December 2012(this paper calls it the "more market-oriented stage"),the existence of investor disposition effect is examined from the market transaction volume and we use the factor analysis method and empirical research method to explore the formation mechanism and manifestation of the disposition effect in the IPO market from the perspective of company fundamental and stock price performance.The empirical results show that there is significant investor disposition effect in Chinese IPO market,investors will invest based on the comprehensive performance of listed companies’ fundamentals,IPO companies with better fundamentals have higher returns on the first day of listing,and perform worse after one year,but the performance of IPO companies with poor fundamentals is opposite.A heuristic psychologicalbias makes investors believe that a company a good issuer IPO has appreciation potential,while the intrinsic value of listed companies with poor fundamentals is low.Therefore,when conducting IPO transactions with different issuing company fundamentals,investors may show a distinctly different tendency to dispose of stocks,that is,the two aspects of selling earnings and holding losses in the disposition effect.The tendency of investors to sell the profitable IPO with the worse fundamental or hold the loss IPO with the best fundamental is more pronounced than the trend of selling or holding other IPO.Finally,the implementation of the first-day IPO price limit policy as a dividing line,and the total sample is divided into companies listed before the policy and companies listed after the policy and analyzed by differences-in-differences through propensity score matching.This paper studies the investor disposition effect from a policy perspective and explores the impact of the first-day price limit policy on it.The empirical results show that the first-day price limit policy can significantly inhibit the investor disposition effect,which is manifested in the increase the investor’s holding period for companies with higher yields,thereby weakening the degree of investor disposition effect to a certain extent.To sum up,this article explores the relationship between the issuing company’s fundamentals,the disposition effect,and the stock price performance after listing along the development of the IPO market.It not only proves the significant disposal behavior of investors in the IPO market,but also reveals the significant differences in the IPO disposition effect of listed companies with different fundamentals,and explains the reasons for the formation of investor disposition effect and the psychological changes in investment.This paper studies the impact of IPO market participants on the low initial IPO pricing and poor long-term performance,which not only helps to improve the performance of the investment portfolio,but also helps explain the reasons for the abnormality of the IPO market.By analyzing the actual effect of the first-day price limit policy on investor disposition effect,it not only expands the research on the impact of IPO policy on investorbehavior,but also has important practical significance for improving the IPO system.