The Information Effect of Time-span and Magnitude of Returns on Underpricing, Volume and Cycles in the IPO Market: An Empirical Analysis on Chinese Stock Market

This study addresses two puzzles in the IPO markets in China: whether underpricing in the IPO market is affected by earlier market information, especially the volume and number of IPOs in the prior period, and whether underpricing in the previous period leads to a subsequent hot period in the IPO markets in China. The main results of this study are as follows. First, while that the magnitudes of weighted (equally or value weighted) IPO volumes in the past have a positive effect on the magnitude of IPO returns in the future, the IPO volume itself has a negative effect on the magnitude of IPO returns in the future. Second, the magnitude of weighted IPO returns in the past has a positive effect on the magnitude of IPO returns, while simultaneously reflecting the effects of both time-span and magnitude in returns and volume. Third, as higher market returns and larger numbers of IPOs only result in more IPOs in the subsequent period during the period before 2004, whereas this phenomenon has since reversed.