Low-Price Effect: Evidence from the Chinese IPO Market

50 Pages Posted: 31 Mar 2018

See all articles by Jing-Zhi Huang

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Zhijian (James) Huang

Rochester Institute of Technology (RIT) - Department of Accounting and Finance

Xiaoyun Yu

Indiana University Kelley School of Business; European Corporate Governance Institute (ECGI); China Academy of Financial Research (CAFR)

Date Written: March 26, 2018

Abstract

We document a strong low-price effect for Chinese initial public offerings (IPOs). Namely, IPOs with low offer prices have higher initial returns, followed by even stronger after-market performance. This low-price effect cannot be fully explained by risks and IPO undervaluation. A long-only secondary market trading strategy investing in low-price IPOs can beat the buy-and-hold market benchmark using several performance measures and under a wide range of parameter settings. Our findings suggest investor preference for low-priced stocks can be quite profitable in the Chinese IPO market as low-priced IPOs outperform initially and in after-market trading.

Keywords: Low-Price Effect, Initial Public Offering, Chinese Stock Market, Nominal Price Illusion, Investor Attention

JEL Classification: G02, G14, G15, G24

Suggested Citation

Huang, Jing-Zhi Jay and Huang, Zhijian and Yu, Xiaoyun, Low-Price Effect: Evidence from the Chinese IPO Market (March 26, 2018). Kelley School of Business Research Paper No. 18-25, Available at SSRN: https://ssrn.com/abstract=3150124 or http://dx.doi.org/10.2139/ssrn.3150124

Jing-Zhi Jay Huang

Pennsylvania State University - University Park - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/jxh56

Zhijian Huang (Contact Author)

Rochester Institute of Technology (RIT) - Department of Accounting and Finance ( email )

College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States

Xiaoyun Yu

Indiana University Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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