Can liquidity shifts explain the lockup expiration effect in stock returns?

Krishnamurti, Chandrasekhar and Subrahmanyam, Avanidhar and Thong, Tiong Yang (2009) Can liquidity shifts explain the lockup expiration effect in stock returns? In: EFA 2009: European Finance Association (Bergen Meeting), 19-27 Aug 2009, Bergen, Norway.

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Several studies on the expiration of IPO lockups document a strong negative reaction even though the unlock event is devoid of any informational content. The empirical finding has remained a conundrum. In this paper, we find that changes in liquidity can account for the observed stock price reaction around lockup expiration. Specifically, firms which show improvement in liquidity subsequent to the unlock day experience positive abnormal returns in the post-expiration period, and vice versa. Another interesting conclusion that emerges from our research is that liquidity changes can predict future abnormal returns. Our results remain robust to the use of alternate procedures to characterize unexpected changes in liquidity.

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Item Type: Conference or Workshop Item (Commonwealth Reporting Category E) (Paper)
Refereed: Yes
Item Status: Live Archive
Additional Information: No evidence of copyright restrictions preventing deposit. Detailed program at
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 03 Jan 2011 08:50
Last Modified: 17 Aug 2014 20:42
Uncontrolled Keywords: lockup expiration; illiquidity; share prices
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
17 Psychology and Cognitive Sciences > 1701 Psychology > 170107 Industrial and Organisational Psychology
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services

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