Lockup expiration, insider selling and bid-ask spreads

Krishnamurti, Chandrasekhar and Thong, Tiong Yang (2008) Lockup expiration, insider selling and bid-ask spreads. International Review of Economics and Finance, 17 (2). pp. 230-244. ISSN 1059-0560


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 postlockup 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.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Awaiting Author's version which may be deposited in accordance with the copyright policy of the publisher.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 15 Feb 2010 23:03
Last Modified: 16 Oct 2014 01:32
Uncontrolled Keywords: lockup expiration; insider selling; liquidity; adverse selection costs
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150101 Accounting Theory and Standards
18 Law and Legal Studies > 1801 Law > 180112 Equity and Trusts Law
Socio-Economic Objective: B Economic Development > 90 Commercial Services and Tourism > 9001 Financial Services > 900199 Financial Services not elsewhere classified
B Economic Development > 91 Economic Framework > 9102 Microeconomics > 910206 Market-Based Mechanisms
Identification Number or DOI: 10.1016/j.iref.2007.06.005
URI: http://eprints.usq.edu.au/id/eprint/6806

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