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

Author

Ting YU, National University of Singapore
Yiu Kuen TSE, Singapore Management UniversityFollow

Publication Type

Working Paper

Version

publishedVersion

Publication Date

9-2003

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.

Keywords

Initial public offering, Ex ante uncertainty, Signaling, Winner's curse, China, stock market

Discipline

Asian Studies | Econometrics | Finance

Research Areas

Econometrics

Volume

17-2003

First Page

1

Last Page

40

Publisher

SMU Economics and Statistics Working Paper Series, No. 17-2003

City or Country

Singapore

Citation

YU, Ting and TSE, Yiu Kuen. An Empirical Examination of IPO Underpricing in the Chinese A-Share Market. (2003). 17-2003, 1-40.
Available at: https://ink.library.smu.edu.sg/soe_research/684

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Comments

Published in China Economic Review, 2006, 17 (4), 363-382, https://doi.org/10.1016/j.chieco.2005.07.001