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Using the Chinese stock market data as sample, this paper investigates the impact of investor sentiment on the assets valuation. In order to classify stocks objectively, our sample stocks are sorted by double indicators (B/M and PE). In the portfolio, we find stocks with low B/M and high PE are sensitive to investor sentiment, which are considered to be costly to arbitrage. Investor sentiment has incremental power to explain stock return co-movements, which indicates that these stocks would perform higher (lower) excess returns when investors are bullish (bearish).Our findings support a role for investor sentiment in the formation of return and the change of investor sentiment should be taken as an important systemic risk in asset pricing and portfolio management.

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We report that initial public offering (IPO) underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all-star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing and to controls for the endogeneity of underpricing and analyst coverage. In addition, we find that the probability of switching underwriters between IPO and seasoned equity offering is negatively related to the unexpected amount of post-IPO analyst coverage. These findings are consistent with the hypothesis that underpricing is, in part, compensation for expected post-IPO analyst coverage from highly ranked analysts.INVESTMENT BANKERS PROVIDE a wide range of services to firms issuing new shares through an initial public offering (IPO). These services include pre-IPO activities, related to the pricing, marketing, and distribution of the offering, as well as post-IPO activities such as price stabilization, market making, and analyst research coverage. Despite the variety of services provided to issuers and the variation in issuer characteristics, there is surprisingly little variation in the direct costs of completing an IPO. Chen and Ritter (2000) and Hansen (2001) show that underwriter spreads in IPOs are clustered at 7% for all but the very smallest and very largest offerings. Moreover, a 15% overallotment option is a standard feature of IPO contracts.Both anecdotal and academic evidence indicate that research coverage has become an essential element of the security issuance process in recent years. Press reports indicate that star analysts play an important role in securing