Opening-Price Performance of Initial Public Offerings in China

Zhong-guo Zhou

Chinese Economy, 2014, vol. 47, issue 2, 94-109

Abstract: In studying the opening-price performance of Chinese initial public offerings (IPOs), we found that more than 95 percent of the first-day return is earned by initial subscribers who sell the shares at the market open. Purchasing at the market open on the first trading day, investors earn 4.21 percent if they sell the shares at the market close on the same day (the median is 0.97 percent). If they sell the shares at the market close after a month (on the twenty-first trading day), they earn -3.41 percent (the median is -5.19 percent). This pattern is consistent over time and across the market, firms, and offer-specific characteristics, with a few exceptions for IPOs initiated during favorable stock market conditions and in certain industries. The overall results are consistent with the asymmetric information hypothesis that outside investors possess better information about the market demand for new shares and the opening price is an efficient indicator of the closing prices on the first and twenty-first trading days. Our results have policy implications.

Date: 2014
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