Abstract
We study IPO initial returns in China’s new ChiNext market by examining 484 ChiNext IPOs from 2009 to 2015, and investigate the impact of the China Securities Regulatory Commission’s pricing and trading mechanism reform on the IPO market. We estimate IPO fair offering prices using the stochastic frontier approach, and decompose the IPO initial returns into a deliberate underpricing component and a market misvaluation component. We further analyse various factors affecting initial returns. Our results show that the irrationality of individual investors can drive post-IPO prices to deviate from fair values and lead to market misvaluation. The high IPO initial returns in China’s ChiNext market result primarily from market misvaluation rather than deliberate underpricing, consistent with other studies.
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© The Author(s) 2016. This article is published with open access by The Hong Kong Polytechnic University
JEL classification: G24, G14
* We thank Professor John C. Edmunds for his detailed constructive comments and suggestions. All remaining errors and omissions are our own.
1 Associate Professor of Finance, Department of Business Administration, Stonehill College, 320 Washington Street, Easton, MA 02357, USA. Phone: 508-565-1986. Email: gmeng@stonehill.edu.
2 Professor of Finance, College of Management and Economics, Tianjin University, China. Email: weiz@tju.edu.cn.
3 Corresponding author. Associate Professor of Financial management, College of Management and Economics, Tianjin University, China. Email: zougaofeng@tju.edu.cn. Zou acknowledges support from the National Natural Science Foundation of China (No. 71471130 and No. 71001077).
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Meng, J., Zhang, W. & Zou, G. Deliberate IPO Underpricing or Market Misvaluation? New Evidence from China. China Account Financ Rev 18, 13 (2016). https://doi.org/10.7603/s40570-016-0013-6
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DOI: https://doi.org/10.7603/s40570-016-0013-6