Abstract: The IPO pricing and underpricing models with different issuing mechanism are constructed based on the CARA model. Then how the non-homogenous expectation of investors influences the IPO underpricing is investigated and comparative analysis to the IPO underpricing between different issuing mechanism is carried out. Then, it is proved that the IPO underpricing will not be eliminated by the issuing of fixed-price or bookbulding but under the same conditions, lower IPO underpricing can be obtained by the issuing of bookbuilding comparing to the fixed-price. Therefore, if the heterogeneity of investors under the Bookbuilding is larger than that of the issuing of fixed-price, the unintentional underpricing of the bookbuilding will increase, and the IPO underpricing may be larger than that of the issuing of fixed-price. Finally, numerical and empirical results verify the conclusion of this paper and explain why the IPO high-underpricing of China under the bookbuilding exists.

Key words: the issuing of mechanism, heterogeneous expectation, underpricing