Title

Lockup Expiration, Insider Selling and Bid-Ask Spreads

Publication Type

Journal Article

Publication Date

2008

Abstract

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. VC-backed firms also experience a decline in quoted and effective spreads in the post-lockup period as compared to non-VC firms. Our empirical results show that insider selling and VC unwinding both improve liquidity after unlock day. However, only insider selling is associated with a reduction in the adverse selection component of spread.

Discipline

Business

Research Areas

Finance

Publication

International Review of Economics and Finance

Volume

17

Issue

2

First Page

230

Last Page

244

ISSN

1059-0560

Identifier

10.1016/j.iref.2007.06.005

Publisher

Elsevier