Chinese IPO activity,pricing, and market cycles |
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Authors: | Zhong-guo Zhou Janet Zhou |
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Institution: | (1) Department of Finance, College of Business and Economics, California State University, Northridge, CA 91330-8379, USA;(2) Graduate School of Business, Stanford University, Palo Alto, CA 94305, USA |
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Abstract: | We examine the activity, pricing, and market cycles of 1,380 Chinese A share IPOs over the period 1991–2005 and find initial
underpricing of 238%. The government restrictions on IPO offer price and quota allocation cause pricing structural breaks
and attribute more than half of initial underpricing. A multifactor model that includes firm’s characteristics, excess demand
for IPO shares, and the government restrictions explains cross-sectional initial returns, after controlling for industrial
differences and stock market conditions. In addition, monthly IPO volume and average initial return are highly correlated.
A VAR model indicates that initial return leads IPO volume by 6 months. |
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Keywords: | |
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