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What comprises IPO initial returns: Evidence from the Chinese market

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  • Gao, Yan
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    Abstract

    We studied the IPO price and long-term performance in China after the adoption of the book-building pricing mechanism. Using comparable firm value, we separated the IPO initial returns into pre-market deliberate underpricing and aftermarket overpricing. This separation enables us to clearly test different theories regarding high IPO initial returns. We find little evidence supporting the classic information theory on IPO underpricing but strong evidence supporting the behavioral arguments regarding IPO overpricing. Even though the results are specific to the Chinese market, we find some general results on what composes and drives IPO initial returns that have been lacking in the IPO literature.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 18 (2010)
    Issue (Month): 1 (January)
    Pages: 77-89

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    Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:77-89

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: IPOs Underpricing Behavioral finance China's stock markets;

    References

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    Cited by:
    1. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 1-20.
    2. Chi, Jing & McWha, Matthew & Young, Martin, 2010. "The performance and the survivorship of New Zealand IPOs," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 172-180, June.
    3. Shen, Zhe & Coakley, Jerry & Instefjord, Norvald, 2013. "Investor participation and underpricing in lottery-allocated Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 294-314.

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