Title

An Empirical Examination of IPO Underpricing in the Chinese A-Share Market

Publication Type

Journal Article

Publication Date

2006

Abstract

Research in the literature shows that initial public offerings (IPOs) of common stocks are systematically priced at a discount to their subsequent initial trading price. The large underpricing magnitude in the Chinese IPO market has attracted much attention. We consider three hypotheses that may explain the IPO underpricing in China. These are the winner's curse hypothesis, the ex ante uncertainty hypothesis and the signaling hypothesis. Among these hypotheses, the winner's curse hypothesis has not been tested in the Chinese market. Using IPO data for online fixed-price offerings from November 1995 to December 1998, our results show that the winner's curse hypothesis is the main reason for the high IPO underpricing in China. The signaling hypothesis is not empirically supported in the Chinese market during the sample period.

Discipline

Econometrics | Finance

Research Areas

Econometrics

Publication

China Economic Review

Volume

17

Issue

4

First Page

363

Last Page

382

ISSN

1043-951X

Identifier

10.1016/j.chieco.2005.07.001

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/j.chieco.2005.07.001

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