IPO underpricing and mutual fund allocation: New evidence from registration system |
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| Institution: | 1. School of Economics, Fudan University, China;2. School of Social Development and Public Policy, Fudan University, China;5. Fanhai International School of Finance, Fudan University, China;1. School of Finance, Shandong University of Finance and Economics Jinan, China;2. Department of Finance, National Taiwan University Taipei, Taiwan |
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| Abstract: | We study the effect of mutual fund allocation on China's IPO market under the new registration system. The introduction of mutual fund bids significantly increases the IPO offer price, resulting in a low initial short-term return and suppressed IPO underpricing. Those newly listed stocks witness lower volatility in the following weeks due to preferential allocation to the mutual fund at the primary market. Further analysis suggests that large investors' net purchase strengthens IPO after-market return and volatility. Besides, the effect of mutual fund participation on IPOs is stronger in places where the COVID-19 outbreak. This new evidence suggests that mutual fund allocation plays a critical role in IPO price discovery and decreases investor lottery trading. |
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