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Chinese IPO Market Cycles

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  • Zhong-guo Zhou
  • Janet Zhou
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    Abstract

    A sample of 1,376 Chinese A-share initial public offerings (IPOs) from 1992 to 2005 is used to examine the relationship between monthly IPO volume and average initial returns. The two series are highly auto- and cross-correlated, with average initial returns leading IPO volume. However, the unit root test and Granger causality test reject the hypotheses that unit roots exist for both series and that there is a direct causal relation between them. Further analysis reveals that monthly IPO volume follows an AR(1) process, while average initial returns follow an ARMA(1, 1) process. A VAR model with ARMA specification in residuals finds that the lagged average initial returns have a positive impact on IPO volume, implying that more firms file for IPOs after high average initial returns in the Chinese IPO market. The lead-time is around six to nine months.

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    Bibliographic Info

    Article provided by M.E. Sharpe, Inc. in its journal Chinese Economy.

    Volume (Year): 44 (2011)
    Issue (Month): 5 (September)
    Pages: 55-71

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    Handle: RePEc:mes:chinec:v:44:y:2011:i:5:p:55-71

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    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=110901

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