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Overreaction in ChiNext IPOs' initial returns: How much and what caused it?

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  • Deng, Qi
  • Zhou, Zhong-guo

Abstract

This paper studies overreaction in initial returns for ChiNext IPOs. We hypothesize the initial return contains a fundamental underpricing and an overreaction. The fundamental is represented by the 21st day return and the difference between the initial and 21st day returns represents overreaction. We investigate this conjecture and identify the variables that are significant for both returns, for one but not for the other, and for the difference. The initial return is driven more by short-term and market factors that cause overreaction while the 21st day return is affected more by an issuer's fundamentals. The overreaction is only weakly time-varying.

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  • Deng, Qi & Zhou, Zhong-guo, 2016. "Overreaction in ChiNext IPOs' initial returns: How much and what caused it?," Emerging Markets Review, Elsevier, vol. 29(C), pages 82-103.
    • Handle: RePEc:eee:ememar:v:29:y:2016:i:c:p:82-103
    DOI: 10.1016/j.ememar.2016.08.012
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    Cited by:

    1. Qi Deng & Lunge Dai & Zixin Yang & Zhong-guo Zhou & Monica Hussein & Dingyi Chen & Mick Swartz, 2022. "The Impact of Regulation Regime Changes on ChiNext IPOs: Effects of 2013 and 2020 Reforms on Pricing and Overreaction," Papers 2212.11779, arXiv.org.
    2. Yang, Baohua & Zhou, Yingluo & Zhou, Zhong-Guo, 2022. "Strategic behavior of insiders in initial underpricing and long-run underperformance," Emerging Markets Review, Elsevier, vol. 53(C).
    3. Deng, Qi & Dai, Lunge & Yang, Zixin & Zhou, Zhong-Guo & Hussein, Monica & Chen, Dingyi & Swartz, Mick, 2023. "The impacts of regulation regime changes on ChiNext IPOs: Effects of 2013 and 2020 reforms on initial return, fair value and overreaction," International Review of Financial Analysis, Elsevier, vol. 89(C).
    4. Liu, Lewis & Neupane, Suman & Zhang, Lei, 2022. "Firm location effect on underwriting, subscription, and underpricing: Evidence from IPOs in China," Economic Modelling, Elsevier, vol. 108(C).
    5. Fang, Hongyan & Nofsinger, John R. & Song, Zhihui & Wang, Shuxun, 2018. "Private equity performance and capital flows: Evidence from China," Emerging Markets Review, Elsevier, vol. 37(C), pages 223-244.
    6. Zhou, Zhong-guo & Hussein, Monica & Deng, Qi, 2021. "ChiNext IPOs' initial returns before and after the 2013 stock market reform: What can we learn?," Emerging Markets Review, Elsevier, vol. 48(C).
    7. Cumming, Douglas & Zhang, Yelin, 2016. "Alternative investments in emerging markets: A review and new trends," Emerging Markets Review, Elsevier, vol. 29(C), pages 1-23.

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    More about this item

    Keywords

    1st day and 21st day initial returns; Overreaction; Short- and long-term factors; Internal and external conditions; Model specification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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