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with Igor Makarov and Antoinette Schoar. Work in progress. 

2. Delayed and Distorted Price Discovery: Post-IPO Stocks in China, 2020

Master's thesis, draft available upon request.

Abstract: I document that regulatory changes in the Chinese IPO market in 2013-14 distorted the price of new stocks and delayed price discovery. The rules impose a low P/E limit on the IPO price and restrict the daily price changes after listing. Under the new rules, prices go to the upper limit with little trading for about two weeks after the listing date. Although the listing prices are suppressed by the P/E limit, the prices at which trading starts are on average 15% to 30% higher than that before the rules. This translates to a 240 billion CNY higher valuation among post-IPO stocks, though the overvaluation reverses to the market median level over the first year after listing. A shift in IPO industry composition from high-P/E to low-P/E after the rule change is consistent with market distortion. 

Price-to-Earnings (P/E) of IPOs in China, 2010-2020. Each dot represents the P/E of a new stock listed in the Shanghai or Shenzhen Stock Exchanges on any given day. The blue line shows the median P/E of the market. The 2014 rule puts a P/E cap of 23 on new listings. 

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