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Lockup Expiration, Insider Selling and Bid-Ask Spreads
International Review of Economics and Finance
  • Tiong Yang THONG, Singapore Management University
  • Chandrasekhar Krishnamurti, Monash University
Publication Type
Journal Article
Publication Date
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.
Citation Information
Tiong Yang THONG and Chandrasekhar Krishnamurti. "Lockup Expiration, Insider Selling and Bid-Ask Spreads" International Review of Economics and Finance Vol. 17 Iss. 2 (2008) p. 230 - 244 ISSN: 1059-0560
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