What Comprises IPO Initial Returns: Evidence from the Chinese Market

Posted: 30 Apr 2010

See all articles by Gao Yan

Gao Yan

affiliation not provided to SSRN

Date Written: December 12, 2009

Abstract

We studied the IPO price and long-term performance in China after the adoption of the book-building pricing mechanism. Using comparable firm value, we separated the IPO initial returns into pre-market deliberate underpricing and aftermarket overpricing. This separation enables us to clearly test different theories regarding high IPO initial returns. We find little evidence supporting the classic information theory on IPO underpricing but strong evidence supporting the behavioral arguments regarding IPO overpricing. Even though the results are specific to the Chinese market, we find some general results on what composes and drives IPO initial returns that have been lacking in the IPO literature.

Keywords: IPOs, Underpricing, Behavioral finance, China’s stock markets

JEL Classification: G12, G14, G15

Suggested Citation

yan, gao, What Comprises IPO Initial Returns: Evidence from the Chinese Market (December 12, 2009). 17th Conference on the Theories and Practices of Securities and Financial Markets, 2009, Available at SSRN: https://ssrn.com/abstract=1596526

Gao Yan (Contact Author)

affiliation not provided to SSRN ( email )

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