The Impacts of Regulation Regime Changes on Chinext Ipos Effects of 2013 and 2020 Reforms on Initial Return, Fair Value and Overreaction

The Chinese version of NASDAQ, ChiNext has gone through three time periods with two different regulation regimes (approval and registration) and three sets of listing day trading restrictions (trading curbs, hard return caps, and no restrictions). We hypothesize that the initial return contains the issuer’s fair value (monthly return) and investors’ overreaction (intramonth return) and estimate their magnitudes. We observe stark contrasts among the determinants of return measures in three different periods. We find that the IPO pricing is more demand-driven under the approval regime, but switches to value-driven under the registration regime. Our findings reveal an evolution of the investors’ behavior in response to the progression of regulations along three dimensions: 1) governing regulation regimes, 2) listing day trading restrictions, and 3) issuer profile