Is Temporary Trading Halt Mechanism for New Shares on The First Day of Trading Conducive to Curbing Speculations?

Abstract

IPO underpricing as well as speculation on the first day of trading is a worldwide phenomenon. In order to curb IPO speculation risks, Shenzhen Stock Exchange makes an attempt to directly restrain price volatility and turnover rate through the Temporary Trading Halt Mechanism. This paper employs Rubin Causal Model and Genetic Matching method to evaluate and analyze real effects of the Mechanism. Empirical results show that, although it lowers the first-day turnover rate, the mechanism does push up first-day returns and first-day Price-to-Earning ratio. In fact, it keeps the closing price stay in a relatively high level, but is helpless for curbing risks.