Finance for Behavioural and Asymmetric Composition-myassignmenthelp

Question: Discuss about theFinance for Behavioural and Asymmetric Composition. Answer: Evaluating the occurrence of short run IPO under-pricing in Australia and US by contrasting the results with empirical study conducted on Hong Kong: The theories comprising of behavioural and asymmetric composition can be identified, as the measure fulfilling the viability of IPO under-pricing in US and Australian market. Moreover, the asymmetric theory indicates that information distribution is not adequately conducted among investors and companies, as it allows the investor to gain abnormal gains. Moreover, the behavioural theory indicates the willingness of the investor to investment in a stock during their IPOs. Hence, the combination of both asymmetric and behavioural theory directly supports that presence of IPO under-pricing, as it allows the investor to generate high rate of return from investment. The investors with the right information forces the price of IPO down to maximise the returns that is generated from investment. Hence, it could be understood that both asymmetric and behavioural theory supports the presence of under-pricing of IPO shares in US and Australian stock market. The empirical research mainly focuses on determining the overall under-pricing of initial public offerings which is been conducted in Hong Kong stock market. The research paper uses the overall duration of 10 years to identify the implications and impact of under-pricing on initial public offerings, while detecting its presence in the Hong Kong stock market. Identifying the presence of under-pricing measure used in Hong Kong stock market could relevantly help in understanding its presence in Australian and US stock market (Chong, Yuan and Yan 2010). The research estimates the average IPOs and pricing level in Hong Kong stock market to detect presence of under-pricing in the stock market. In this context, Boulton, Smart and Zutter (2017) stated that with the under-pricing of IPOs the underwriter is able to attract more investors during the IPO initiation and effectively free float shares of the organisation. From the early valuation of the research it could be identified that 16.6% of the 92 IPOs were on an average underpriced, directly indicate its presence in the Hong Kong stock market. Moreover, Beck (2017) stated that the IPO under-pricing is a relatively high in developing countries in comparison to developed countries, as investors are keen on increasing the profits from the initial public offering. The researcher also evaluated the short run abnormal returns that are generated from the IPO under-pricing in Hong Kong stock market. This would eventually help in satisfying the statement regarding the presence of under-pricing of IPOs. The researcher collectively uses dependent variables such as the closing price of IPOs first day trading, which is used in understanding the difference between the initial price and the closing price of a particular stock (Chong, Yuan and Yan 2010). Second dependent is also used in the research, which comprises of data from first 7 trading days and firs t 15 trading days for detecting the overall presence of under-pricing in IPOs. The explanatory variables are also used in the research for identifying the impact of under-pricing in determining the overall share price of IPOs. With the use of geometric mean the overall returns and annual growth of a particular stock can be identified, which might allow investors to increase the level of returns from investment. The researcher has a relatively used regression analysis to identify the significance of the values derived from the calculation. The researcher also evaluates that the Four Big Firms conducts the IPO valuation and selling in the stock market. The calculations mainly state that IPO selling conducted by PricewaterhouseCoopers and KPMG is much accurate on Hong Kong, as compared to the evaluations conducted by Ernst Young and Deloitte Touche (Chong, Yuan and Yan 2010). The empirical research also indicated that there is a presence of under-pricing of IPL during the initial stage, where low price shares are provided to investors to complete the share selli ng process. The low cost shares provided to investors relatively allows the company to sell of their issues for generating the required level of capital (Francis 2017). From the overall evaluation, it could be identified that IPO under-pricing level in Hong Kong stock market is at the levels of 16.8%, which has a relatively small magnitude of an uprising in comparison to other countries (Chong, Yuan and Yan 2010). Moreover, the shares related to A-Category are less impacted with the under-pricing process, while the B-Category stock is highly impacted by the under-pricing process. Therefore, from the evaluation of the empirical research it could be understood that developed countries have less impact of under-pricing during initial public offerings as compared to developing countries. However, the presence of enterprising for short duration is the relatively present in the Hong Kong stock market as evaluated from the empirical research. Hence, from the valuation of Hong Kong stock market it could be identified that both US and Australian stock market conduct IPO under-pricing for short duration. Consequently, the occurrence of short-run IP on the pricing in the Australian market would eventually hamper the company's ability to raise the level of capital to support its operational plans. This under-pricing is essential for both the investors and companies to benefit from the initial investment conducted during the IPO session (Morricone et al. 2017). The research directly shows that in case of developed countries, the under-pricing impact is less, while developing countries have high impact of short run under-pricing in its stock market, which benefits the initial investors and allow them to generate higher returns from investment. Reference and Bibliography: Beck, J., 2017. Determinants of IPO Underpricing: Tech vs Non-Tech Industries.Major Themes in Economics,19(1), pp.39-55. Boulton, T.J., Smart, S.B. and Zutter, C.J., 2017. Conservatism and international IPO underpricing.Journal of International Business Studies,48(6), pp.763-785. Chong, T.T.L., Yuan, S. and Yan, I.K.M., 2010. An examination of the underpricing of H-share IPOs in Hong Kong.Review of Pacific Basin Financial Markets and Policies,13(04), pp.559-582. Francis, B., 2017.The Information Environment of the Firm and IPO Underpricing(Doctoral dissertation, Rensselaer Polytechnic Institute). Kotlar, J., Signori, A., De Massis, A. and Vismara, S., 2017. Financial wealth, socioemotional wealth and IPO underpricing in family firms: A two-stage gamble model.Academy of Management Journal, pp.amj-2016. Morricone, S., Munari, F., Oriani, R. and De Rassenfosse, G., 2017. Commercialization Strategy and IPO Underpricing.Research Policy,46(6), pp.1133-1141.