Are Chinese REIT IPOs Unique? Initial Return Performance Evidence

Abstract

The underpricing of initial public offerings (IPOs) remains a significant puzzle in the finance literature. While international studies have documented the underpricing anomaly in real estate investment trust (REIT) IPOs, the Chinese REIT (C-REIT) market, now the second largest globally, has received limited attention regarding IPO initial returns. This paper addresses this gap by examining the initial price performance of C-REIT IPOs by using first-day returns and the capital asset pricing model (CAPM). The study further investigates differences in initial returns across various investor types, asset classes, and market development phases. Consistent with global trends, C-REIT IPOs exhibit underpricing, with a mean first-day return of 7.51%. Returns tend to decline after the first day, improving in only 30% of cases by Day 5. The market experienced significant underpricing from 2021 to 2022 but showed recovery in 2024. A regression analysis indicates that issuance size and time to listing are negatively correlated with underpricing, while subscription multiples and performance clauses are positively correlated. The results support the information asymmetry explanation for underpricing. Recommendations are provided for investors and regulators to enhance market efficiency and stability.

View PDF – https://doi.org/10.53383/100414