Factors affecting IPO underpricing and its composition in Chinese market

Based on stochastic frontier approach,this paper analyzes the pricing of initial public offerings(IPOs) in different periods during the issuance system reform,composition of IPOs' underpricing and factors affecting it.This paper finds that the pricing of IPOs in different periods has different characteristics,which are different from the developed capital markets.Because,before 2005,the offer price of IPOs shows the lower stochastic frontier,which is completely opposite to overseas market.After the Book-building mechanism has been adopted in 2005,the upper stochastic frontier characteristic in the pricing of IPOs begin to appear,which is similar to the developed capital market;The IPO underpricing in China is related not only to the pricing factors in the primary market,but also mainly to the investors' sentiment and the market environment factors in the secondary market.