Lockup expiration, insider selling and bid-ask spreads.
Peh, Hwee Hwee.
Date of Issue2005
College of Business (Nanyang Business School)
Contrary to our expectation that lockup expiration should result in an exacerbation of the information asymmetry problem faced by market makers, we find an improvement in secondary market liquidity in the post-expiration period. For the subset of firms with reported insider sales during the 10-day post lockup expiration period, bid-ask spreads reduce by a larger percentage - mainly due to a decline in the adverse selection component. The increase in float dominates any possible information effects. A policy implication of this finding is that early release of firms from lock up restrictions, is likely to dramatically improve secondary market liquidity.
Nanyang Technological University