Chinese IPO Market Cycles
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.
Volume (Year): 44 (2011)
Issue (Month): 5 (September)
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