The determinants of IPO initial returns for Chinese A-shares: an application of quantile regression

Abstract

This paper investigates the determinants of initial public offering (IPO) initial returns for a sample of Chinese A-shares, the period from January 1993 to August 2006. Some features are highlighted in our paper as follows. First, in order to investigate the difference of determinants of IPO initial returns between the high and low initial returns, this paper applies the Quantile Regression (QR, hereafter) method. Second, this paper is the first of its kind to derive and explore the economic implications of the effect of market returns on the market-adjusted initial return. Third, we also take into consideration the important factors of “Macro Regulation and Control” and the “Reform of the Offering Price Model” in studying the IPO initial returns of A-shares. The results of the estimation are as follows. First, there are various differences between high and low initial returns, meaning that the empirical results of the quantile regression are more capable of describing the impact of the explanatory variables on the high and low IPO initial returns. Secondly, the macro controls and the reforms do in fact mitigate the high IPO initial returns. Third, the positive effect of the market returns on the high market-adjusted initial returns (IPO initial returns) indicates that these two returns move in the same direction, but that the volatility of the market-adjusted returns is higher than that of the market returns.