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Investor participation and underpricing in lottery-allocated Chinese IPOs

Shen, Zhe and Coakley, Jerry and Instefjord, Norvald (2013) 'Investor participation and underpricing in lottery-allocated Chinese IPOs.' Pacific-Basin Finance Journal, 25 (C). pp. 294-314. ISSN 0927-538X

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Abstract

We examine the association between IPO underpricing and investor participation using a unique sample of 411 Chinese IPOs where the offer price is not influenced by the issuers and underwriters, and allocation to subscribers is by a lottery mechanism. We find that investor participation does not increase with the profitability or liquidity of new issues contrary to the rational participation and liquidity hypotheses. However, consistent with the price bubbles hypothesis, we find robust evidence that initial returns and investor participation are positively related and that initial returns are inversely related with the three-year risk-adjusted abnormal return following IPOs. The implication is that excess demand inflated initial trading prices and exacerbated the Chinese "underpricing" phenomenon during our 1996-2000 sample period. © 2013 Elsevier B.V.

Item Type: Article
Uncontrolled Keywords: Rational participation; Price bubbles; IPO underpricing
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 06 Nov 2013 11:11
Last Modified: 15 Jan 2022 00:29
URI: http://repository.essex.ac.uk/id/eprint/8270

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