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Regulated price and Demand in China’s IPO market

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  • Geertsema, Paul
  • Lu, Helen

Abstract

We use simultaneous equations to model the bi-directional causality between IPO initial returns and oversubscription ratios in China. We find that the causality is one-directional from oversubscription ratios to IPO initial returns in the post-reform period (2005–2015), which is consistent with a demand effect. By contrast, a demand effect did not exist in the pre-reform period (1996–2004). Our findings suggest that the 2005 reform of the IPO pricing mechanism has allowed IPO prices to be determined by market forces in China.

Suggested Citation

  • Geertsema, Paul & Lu, Helen, 2019. "Regulated price and Demand in China’s IPO market," Journal of Economics and Business, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:jebusi:v:106:y:2019:i:c:s0148619518302376
    DOI: 10.1016/j.jeconbus.2019.105846
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    More about this item

    Keywords

    Initial public offering; Initial returns; IPO underpricing; IPO oversubscription; Simultaneous equations; A-share markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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