Paraphrase the paragraphs in the document - Essay Example

n the Chinese stock market, there are basically five classes of stocks: the ordinary domestic stock (A shares), foreign shares (includes B, h and N shares), legal entity shares (C shares), government shares and employee shares. Of all the five groups of shares in the Chinese stock market, the A shares have attracted the interest of most researchers. The A shares are listed in the Shanghai Stock Exchange as well as the Shenzhen Securities Exchange. The quotation of the A shares in both financial markets is done in the Chinese renminbi Yuan and only individuals who live in the country can buy the shares.

Further, the Chinese stock market differs from its counterparts in developed nations on the basis of regulations and restrictions. In the Chinese stock market, the process of offering IPOs is characterised by strict regulations and restrictions than those in developed nations. The China Securities Regulatory Commission (CSRC) sets the rules for the Chinese stock market and ensures all the dealings are conducted in accordance with the set rules. Besides determining the newly issued shares’ annual quota, the CSRC is also responsible for setting the method of determining the offering price for new shares.

The CSRC is charged with the responsibility of determining the allotment of quota to different areas and provinces via specific criteria, thus providing the number as well as cumulative value of IPOs awaiting listing on the stock market. The CSRC determines the fixed offering price (online) by multiplying the company’s earnings per share by preset price earning ratio (P/E ratio). As a result, the Chinese IPOs receive little or no feedback because of the inflexibility of the method used for setting the offer price, which makes it difficult to respond to market changes (Su & Fleisher 1999).

Critically assessing the features of the Chinese stock market, it is apparent that there are many factors interplaying to yield the Chinese IPO underpricing. The factors