China 's Stock Market And Its Abnormal Characteristics

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SECTION I: INTRODUCTION

By virtue of an accelerated dynamic economy, China’s stock market has witnessed rapid growth from a global perspective over last decades, along with massive IPO activities emerged with a huge amount of fund raised. The reasons why the Chinese initial public offering (IPO) market and its abnormal characteristics have drawn more interests from investors can be attributed to multiple aspects.
First, one of the most significant puzzles of IPO – underpricing – is at an unimaginably high level in Chinese IPO market. Although the degree of underpricing varies enormously across countries, the unusual IPO underpricing phenomena in Chinese IPO market are shocking and become a hot issue all over the world. Loughran, Ritter,
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Third, the Chinese IPO market has witnessed a rapid development over the last two decades. During this time period the Chinese IPO market experienced many improvements in relation to IPO issuance, including pricing methods, allocation mechanisms and issuing systems (Citation). At the meantime, a variety of boards have been initiated in Chinese stock market in order to ensure that different types of firms are able to meet the capital-raising goal from an external source, such as boards for B-shares, ChiNext.
In order to propose a comprehensive explanation, scholars with various academic background have conducted both theoretical and empirical researches from different perspectives all over the world. Additionally, relevant factors which have potential impact on IPO underpricing have been identified and discussed, including ownership structure, allocation mechanisms, reputation of underwriters, firm- and industry- specific conditions, regulation background, etc.
However, among existing research outcomes, in terms of Chinese stock market, few studies have re-examined the practicability of those theories within a post-crisis context. In this study, I will try to make contribution to existing theories and models on underpricing of IPOs, by exploiting the previous theories – particularly prospect theory, within a Chinese stock market context.

The structure of this proposal is as follow. In Section II, the literature on underpricing of IPOs,
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