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SEO underpricing in China's stock market: a stochastic frontier approach

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  • C. Liu
  • C. Y. Chung

Abstract

This article studies a sample of 225 Chinese A-share Seasoned Equity Offerings (SEOs) from 1999 to 2007. We compare a novel underpricing measure with a Stochastic Frontier Approach (SFA) as in Koop and Li (2001) to the conventional measure based on the difference between primary market price and secondary market price. We find that SEO underpricing exists in China's stock market, but there is a vast discrepancy between the magnitudes under the two different measures. Also, our empirical results show that the main determinants of the underpricing are associated with high asymmetric information among underwriters, issuers and investors, which is unsurprisingly pronounced in emerging markets such as that of China.

Suggested Citation

  • C. Liu & C. Y. Chung, 2013. "SEO underpricing in China's stock market: a stochastic frontier approach," Applied Financial Economics, Taylor & Francis Journals, vol. 23(5), pages 393-402, March.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:5:p:393-402
    DOI: 10.1080/09603107.2012.707771
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    Cited by:

    1. Xunan Feng & Kam C. Chan, 2019. "Mutual funds’ selective participation and subsequent performance of seasoned equity offerings," Empirical Economics, Springer, vol. 56(6), pages 1797-1822, June.

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