Price, Volume and Spread Effects Associated with the Expiry of Lock-In Agreements: Evidence from the Hong Kong IPO Market

Posted: 9 Aug 2011

See all articles by Marc Goergen

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Khelifa Mazouz

University of Bradford - School of Management

Shuxing Yin

University of Sheffield - School of Management

Date Written: 2010

Abstract

We examine the price, volume and bid-ask spread reactions to lock-in expiries in Hong Kong IPOs. We show that the lock-in expiry causes an increase in both trading volume and bid–ask spread, but no significant change in the share price. We attribute the absence of a price reaction to the fact that most of the Hong Kong IPO firms are controlled by one or two non-institutional shareholders who choose not to sell their shares after the lock-in expiry. Another plausible reason for the absence of a price reaction may be the period studied by this paper which follows the publication of a number of studies on lock-in expiry. The publication of the anomaly may have arbitraged away any gains internationally. The absence of significant abnormal returns around the lock-in expiry confirms the semi-strong form of the efficient market hypothesis. Our results are consistent with the European evidence, but contradict the findings of most US studies. We show that the volume and spread increases are not caused by the sales by locked-in insiders around the lock-in expiry. The volume increase may be caused by the presence of undisclosed insider transactions around the lock-in expiry. This may well be the case, since the insider trading disclosure requirement does not apply to transactions that result in a change of less than one percentage point to an insider holding. Finally, we show that the wider spread is likely to be caused by market makers charging high information rent to protect themselves against potential trading with informed insiders.

Keywords: Initial public offerings, Asymmetric information, Insider trading, Lock-in expiry, Lockup expiry

JEL Classification: G24, G34

Suggested Citation

Goergen, Marc and Mazouz, Khelifa and Yin, Shuxing, Price, Volume and Spread Effects Associated with the Expiry of Lock-In Agreements: Evidence from the Hong Kong IPO Market (2010). Pacific-Basin Finance Journal, Vol. 18, No. 5, 2010, Available at SSRN: https://ssrn.com/abstract=1907285

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Khelifa Mazouz

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Shuxing Yin

University of Sheffield - School of Management ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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