S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94

IPO Lockup Expirations

A lock-up on an IPO prevents major shareholders and company insiders from selling shares in the company for a specified number of days following an IPO to prevent the market from being flooded with too much supply of a company's stock. Following the expiration of the lock-up period, restrictions preventing a company's employees and other major shareholders from selling their stock are lifted. Lock-up expirations often coincide with a 1-3% drop in the company's stock because of the increased number of available shares in the company. More about lock-up periods.

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CompanyCurrent PriceExpiration DateNumber of SharesInitial Share PriceOffer SizeDate PricedIndicator(s)
IFBD
Infobird
$2.13
0.0%
10/18/20216,250,000$4.00$25,000,0004/20/2021Short Interest ↓
News Coverage
PATH
UiPath
$49.99
0.0%
10/18/202123,890,777$56.00$1,337,883,5124/21/2021Gap Up
SKYT
SkyWater Technology
$26.76
+0.0%
10/18/20216,960,000$14.00$97,440,0004/21/2021
TRKA
Troika Media Group
$1.46
10/18/20215,783,133$4.00$24,000,0024/20/2021Short Interest ↓
DV
DoubleVerify
$31.76
0.0%
10/18/202113,333,335$27.00$360,000,0454/21/2021Short Interest ↑
High Trading Volume
ZY
Zymergen
$12.85
+0.0%
10/19/202116,130,000$31.00$500,030,0004/22/2021
NPCE
NeuroPace
$15.67
-1.3%
10/19/20216,000,000$17.00$102,000,0004/22/2021Short Interest ↑
KNBE
KnowBe4
$22.48
0.0%
10/19/20219,500,000$16.00$152,000,0004/22/2021
IMPL
Impel NeuroPharma
$9.90
0.0%
10/20/20215,333,334$15.00$80,000,0104/23/2021Gap Up
SWIM
Latham Group
$13.19
0.0%
10/20/202120,000,000$19.00$380,000,0004/23/2021Analyst Downgrade
Short Interest ↓
Analyst Revision
News Coverage
Gap Up
High Trading Volume
RAIN
Rain Therapeutics
$14.72
+0.0%
10/20/20217,352,941$17.00$124,999,9974/23/2021Analyst Upgrade
Insider Selling
TMCI
Treace Medical Concepts
$24.42
+0.0%
10/20/202111,250,000$17.00$191,250,0004/23/2021News Coverage
FTCI
FTC Solar
$6.58
-1.3%
10/25/202119,840,000$13.00$257,920,0004/28/2021
AVAH
Aveanna Healthcare
$6.73
+0.0%
10/26/202138,236,000$12.00$458,832,0004/29/2021Analyst Report
PRVA
Privia Health Group
$23.51
0.0%
10/26/202119,500,000$23.00$448,500,0004/29/2021Analyst Report
Short Interest ↓
Analyst Revision
News Coverage
EDR
Endeavor Group
$24.68
0.0%
10/26/202121,300,000$24.00$511,200,0004/29/2021Short Interest ↑
IACC
ION Acquisition Corp 3
$9.78
10/27/202122,000,000$10.00$220,000,0004/30/2021Short Interest ↑
Negative News
VACC
Vaccitech
$14.64
+0.6%
10/27/20216,500,000$17.00$110,500,0004/30/2021Short Interest ↑
News Coverage
HOWL
Werewolf Therapeutics
$17.07
+0.0%
10/27/20217,500,000$16.00$120,000,0004/30/2021News Coverage
HNST
The Honest
$9.24
0.0%
11/1/202125,807,000$16.00$412,912,0005/5/2021Positive News
Gap Up
ALF
Alfi
$6.05
0.0%
11/1/20213,731,344$4.00$15,485,0785/4/2021Short Interest ↑
News Coverage
Gap Up
FSBC
Five Star Bancorp
$25.09
0.0%
11/1/20215,265,000$20.00$105,300,0005/5/2021Short Interest ↓
Gap Up
VALN
Valneva
$28.05
+0.0%
11/2/20212,318,881$26.00$61,241,6475/6/2021Analyst Upgrade
Short Interest ↓
OG
Onion Global
$10.30
+0.0%
11/3/20219,310,350$7.00$67,500,0385/7/2021Short Interest ↓
Gap Down
WDH
Waterdrop
$2.14
0.0%
11/3/202130,000,000$12.00$360,000,0005/7/2021Short Interest ↑
Gap Up
BWMN
Bowman Consulting Group
$14.09
+0.0%
11/3/20213,690,000$14.00$51,660,0005/7/2021Analyst Upgrade
News Coverage
ANEB
Anebulo Pharmaceuticals
$7.18
+0.0%
11/3/20213,000,000$7.00$21,000,0005/7/2021Short Interest ↓
News Coverage
Gap Down
TALS
Talaris Therapeutics
$15.50
+1.2%
11/3/20218,825,000$17.00$150,025,0005/7/2021Gap Up
IPW
iPower
$3.01
0.0%
11/8/20213,360,000$5.00$16,800,0005/12/2021Short Interest ↑
Gap Up
FLGC
Flora Growth
$5.02
0.0%
11/8/20213,333,333$5.00$16,666,6655/11/2021Analyst Report
Short Interest ↑
GLBE
Global-e Online
$57.08
-2.5%
11/8/202115,000,000$25.00$375,000,0005/12/2021Short Interest ↑
News Coverage
SMWB
Similarweb
$20.03
0.0%
11/8/20218,000,000$22.00$176,000,0005/12/2021Analyst Upgrade
Short Interest ↑
Gap Up
VERA
Vera Therapeutics
$15.01
0.0%
11/10/20214,350,000$11.00$47,850,0005/14/2021Gap Up
DBGI
Digital Brands Group
$2.88
0.0%
11/10/20212,409,639$4.00$10,000,0025/14/2021Short Interest ↑
EJH
E-Home Household Service
$3.00
0.0%
11/10/20215,555,556$4.00$25,000,0025/14/2021News Coverage
JZXN
Jiuzi
$2.29
+0.0%
11/15/20215,200,000$5.00$26,000,0005/18/2021News Coverage
Gap Down
SQSP
Squarespace
$38.40
+0.0%
11/15/202140,401,820$50.00$2,020,091,0005/19/2021Analyst Upgrade
Short Interest ↑
News Coverage
OTLY
Oatly Group
$14.51
0.0%
11/16/202184,376,000$17.00$1,434,392,0005/20/2021Gap Up
PCOR
Procore Technologies
$95.25
+0.0%
11/16/20219,470,000$67.00$634,490,0005/20/2021
DYNS
Dynamics Special Purpose
$9.95
0.0%
11/22/202120,000,000$10.00$200,000,0005/26/2021Short Interest ↑
News Coverage
FWAC
Fifth Wall Acquisition Corp. III
$9.87
+0.1%
11/22/202125,000,000$10.00$250,000,0005/25/2021Short Interest ↓
FLYW
Flywire
$51.85
0.0%
11/22/202110,440,000$24.00$250,560,0005/26/2021Short Interest ↑
News Coverage
Gap Up
High Trading Volume
PAY
Paymentus
$24.04
0.0%
11/22/202110,000,000$21.00$210,000,0005/26/2021Short Interest ↑
FIGS
FIGS
$36.33
0.0%
11/23/202126,386,363$22.00$580,499,9865/27/2021Analyst Downgrade
DAWN
Day One Biopharmaceuticals
$22.15
0.0%
11/23/202110,000,000$16.00$160,000,0005/27/2021Analyst Upgrade
Gap Up
OMIC
Singular Genomics Systems
$14.02
+0.0%
11/23/202110,200,000$22.00$224,400,0005/27/2021Analyst Downgrade
Short Interest ↑
News Coverage
CNTA
Centessa Pharmaceuticals
$16.80
+0.0%
11/24/202116,500,000$20.00$330,000,0005/28/2021Short Interest ↑
Gap Down
DLO
DLocal
$61.29
+0.0%
11/30/202129,411,765$21.00$617,647,0656/3/2021Short Interest ↑
MQ
Marqeta
$22.51
-0.9%
12/6/202145,454,546$27.00$1,227,272,7426/9/2021
ISAA
Iron Spark I
$9.97
0.0%
12/6/202115,000,000$10.00$150,000,0006/9/2021Short Interest ↓
Positive News
High Trading Volume
ZME
Zhangmen Education
$2.39
0.0%
12/6/20213,623,000$12.00$41,664,5006/8/2021Short Interest ↑
Gap Up
ZME
Zhangmen Education
$2.39
0.0%
12/6/20213,623,000$12.00$41,664,5006/8/2021Short Interest ↑
Gap Up
ZETA
Zeta Global
$7.94
0.0%
12/7/202121,500,000$10.00$215,000,0006/10/2021Analyst Downgrade
News Coverage
LFST
LifeStance Health Group
$11.50
0.0%
12/7/202140,000,000$18.00$720,000,0006/10/2021Short Interest ↑
News Coverage
Gap Up
MNDY
monday.com
$358.71
0.0%
12/7/20213,700,000$155.00$573,500,0006/10/2021Gap Up
DIBS
1stdibs.Com
$14.79
+0.0%
12/7/20215,750,000$20.00$115,000,0006/10/2021
TASK
TaskUs
$64.76
0.0%
12/8/202113,200,000$23.00$303,600,0006/11/2021Analyst Upgrade
Short Interest ↑
News Coverage
Gap Up
JANX
Janux Therapeutics
$21.13
0.0%
12/8/202111,400,000$17.00$193,800,0006/11/2021Analyst Upgrade
Short Interest ↑
Gap Up
SBEV
Splash Beverage Group
$1.92
+0.0%
12/8/20213,750,000$4.00$15,000,0006/11/2021Short Interest ↑
WKME
WalkMe
$23.74
0.0%
12/13/20219,250,000$31.00$286,750,0006/16/2021Short Interest ↑
Gap Up
CNVY
Convey Holding Parent
$7.73
0.0%
12/13/202113,333,334$14.00$186,666,6766/16/2021Short Interest ↑
Gap Up
MOLN
Molecular Partners
$19.80
0.0%
12/13/20213,000,000$21.00$63,750,0006/16/2021
ALZN
Alzamend Neuro
$2.39
-1.2%
12/13/20212,500,000$5.00$12,500,0006/15/2021Short Interest ↓
ISPC
iSpecimen
$6.34
+0.0%
12/14/20212,250,000$8.00$18,000,0006/17/2021Short Interest ↑
News Coverage
LYEL
Lyell Immunopharma
$13.28
0.0%
12/14/202125,000,000$17.00$425,000,0006/17/2021Gap Up
AOMR
Angel Oak Mortgage
$17.64
0.0%
12/14/20217,200,000$19.00$136,800,0006/17/2021Analyst Downgrade
Short Interest ↑
VERV
Verve Therapeutics
$43.93
-3.1%
12/14/202114,035,789$19.00$266,679,9916/17/2021
TRMR
Tremor International Ltd. American Depository Shares
$18.82
0.0%
12/15/20216,768,953$19.00$128,610,1076/18/2021
ATAI
ATA
$13.50
+4.1%
12/15/202115,000,000$15.00$225,000,0006/18/2021Analyst Downgrade
AMAM
Ambrx Biopharma
$12.47
+0.0%
12/15/20217,000,000$18.00$126,000,0006/18/2021Short Interest ↑
Gap Down
CYT
Cytec Industries
$17.29
+1.4%
12/15/20217,400,000$18.00$133,200,0006/18/2021News Coverage
Gap Up
RERE
AiHuiShou International
$9.04
0.0%
12/15/202116,233,000$14.00$227,262,0006/18/2021Analyst Upgrade
Short Interest ↑
IPSC
Century Therapeutics
$19.31
0.0%
12/15/202110,550,000$20.00$211,000,0006/18/2021Analyst Upgrade
Gap Up
DNAY
Codex DNA
$10.87
+2.2%
12/15/20216,666,665$16.00$106,666,6406/18/2021Analyst Downgrade
Short Interest ↑
Negative News
FEMY
Femasys
$7.00
0.0%
12/15/20212,650,000$13.00$34,450,0006/18/2021Analyst Downgrade
Short Interest ↑
YMM
Full Truck Alliance
$14.14
+0.0%
12/20/202182,500,000$19.00$1,567,500,0006/22/2021
FA
First Advantage
$20.62
-0.6%
12/20/202125,500,000$15.00$382,500,0006/23/2021Analyst Downgrade
CXM
Sprinklr
$17.03
0.0%
12/20/202116,625,000$16.00$266,000,0006/23/2021Gap Up
CXM
Sprinklr
$17.03
0.0%
12/20/202116,625,000$16.00$266,000,0006/23/2021Gap Up
BHG
Bright Health Group
$7.86
+0.0%
12/21/202151,350,000$18.00$924,300,0006/24/2021Short Interest ↑
BON
Bon Natural Life
$6.05
+7.7%
12/21/20212,200,000$5.00$11,000,0006/24/2021News Coverage
Gap Up
GLUE
Monte Rosa Therapeutics
$21.20
-9.0%
12/21/202111,700,000$19.00$222,300,0006/24/2021Analyst Downgrade
Short Interest ↑
Analyst Revision
News Coverage
Gap Up
DOCS
Doximity
$69.88
0.0%
12/21/202123,300,000$26.00$605,800,0006/24/2021Analyst Downgrade
Gap Up
CFLT
Confluent
$66.90
-0.8%
12/21/202123,000,000$36.00$828,000,0006/24/2021News Coverage
Gap Up
GRVI
Grove
$6.40
-8.3%
12/21/20212,200,000$5.00$11,000,0006/24/2021Short Interest ↑
News Coverage
Gap Down
MIRO
Miromatrix Medical
$8.37
+2.6%
12/21/20214,800,000$9.00$43,200,0006/24/2021Short Interest ↑
TKNO
Alpha Teknova
$23.10
-5.1%
12/22/20216,000,000$16.00$96,000,0006/25/2021Analyst Report
Short Interest ↑
News Coverage
Gap Up
GRPH
Graphite Bio
$12.78
+0.0%
12/22/202114,000,000$17.00$238,000,0006/25/2021Insider Buying
Short Interest ↑
ACXP
Acurx Pharmaceuticals
$4.91
0.0%
12/22/20212,500,000$6.00$15,000,0006/25/2021Negative News
ELEV
Elevation Oncology
$7.96
+0.0%
12/22/20216,250,000$16.00$100,000,0006/25/2021Analyst Upgrade
Short Interest ↑
News Coverage
GHRS
GH Research
$17.00
0.0%
12/22/202110,000,000$16.00$160,000,0006/25/2021Short Interest ↓
MCW
Mister Car Wash
$17.32
0.0%
12/22/202137,500,000$15.00$562,500,0006/25/2021Analyst Upgrade
Short Interest ↑
News Coverage
Gap Up
MF
Missfresh
$3.81
0.0%
12/22/202121,000,000$13.00$273,000,0006/25/2021
DDL
Dingdong (Cayman)
$24.80
+0.0%
12/27/20214,072,000$24.00$95,692,0006/29/2021News Coverage
DIDI
DiDi Global
$8.26
0.0%
12/27/2021316,800,000$14.00$4,435,200,0006/30/2021
YOU
Clear Secure
$40.35
+0.0%
12/27/202113,200,000$31.00$409,200,0006/30/2021Short Interest ↑
XMTR
Xometry
$59.88
+0.0%
12/27/20216,875,000$44.00$302,500,0006/30/2021Analyst Upgrade
Short Interest ↑
News Coverage
S
SentinelOne
$59.58
0.0%
12/27/202135,000,000$35.00$1,225,000,0006/30/2021Gap Up
GOBI
Gobi Acquisition
$9.73
12/27/202125,000,000$10.00$250,000,0006/29/2021News Coverage
AVTE
Aerovate Therapeutics
$14.13
0.0%
12/27/20218,682,142$14.00$121,549,9886/30/2021Short Interest ↑
Negative News
Gap Up
BTTR
Better Choice
$4.27
+0.0%
12/27/20218,000,000$5.00$40,000,0006/29/2021Analyst Upgrade
Gap Down
High Trading Volume
DNAA
Social Capital Suvretta Holdings Corp. I Class A Ordinary Share
$9.87
+0.0%
12/27/202122,000,000$10.00$220,000,0006/30/2021Short Interest ↑
DNAB
Social Capital Suvretta Holdings Corp. II
$9.89
+0.0%
12/27/202122,000,000$10.00$220,000,0006/30/2021Short Interest ↑
DNAC
Social Capital Suvretta Holdings Corp. III Class A ordinary shares
$9.87
12/27/202122,000,000$10.00$220,000,0006/30/2021Short Interest ↑
CPOP
Pop Culture Group
$2.92
0.0%
12/27/20216,200,000$6.00$37,200,0006/30/2021Short Interest ↓
News Coverage
Gap Up
CVRX
CVRx
$15.66
0.0%
12/27/20217,000,000$18.00$126,000,0006/30/2021Gap Up
IAS
Integral Ad Science
$23.01
0.0%
12/27/202115,000,000$18.00$270,000,0006/30/2021Short Interest ↑
INTA
Intapp
$25.20
0.0%
12/27/202110,500,000$26.00$273,000,0006/30/2021Short Interest ↑
LZ
LegalZoom.com
$25.07
0.0%
12/27/202119,121,000$28.00$535,388,0006/30/2021Analyst Upgrade
Short Interest ↑
News Coverage
Gap Up
HEPS
D-MARKET Elektronik Hizmetler ve Ticaret Anonim Sirketi
$5.22
0.0%
12/28/202156,740,000$12.00$680,880,0007/1/2021Short Interest ↑
Gap Up
ABOS
Acumen Pharmaceuticals
$13.55
-2.7%
12/28/20219,999,999$16.00$159,999,9847/1/2021Short Interest ↑
EVCM
EverCommerce
$19.03
+0.0%
12/28/202119,117,648$17.00$325,000,0167/1/2021Short Interest ↑
DNUT
Krispy Kreme
$13.91
0.0%
12/28/202129,411,765$17.00$500,000,0057/1/2021Analyst Report
Gap Up
CURV
Torrid
$13.70
0.0%
12/28/202111,000,000$21.00$231,000,0007/1/2021Analyst Report
Short Interest ↑
Gap Up
VRAR
The Glimpse Group
$9.38
+0.0%
12/28/20211,750,000$7.00$12,250,0007/1/2021Short Interest ↑
News Coverage
Gap Down
WAVE
Eco Wave Power Global AB (publ) American Depositary Shares
$7.50
+0.0%
12/28/20211,000,000$8.00$8,000,0007/1/2021Short Interest ↓
Gap Down
NYXH
Nyxoah
$25.50
0.0%
12/29/20212,835,000$30.00$85,050,0007/2/2021Short Interest ↑
News Coverage
What is a Lock-Up Period?

Summary - When a company makes the decision to go public, they frequently register for an initial public offering (IPO) as a way to raise private equity. In the IPO prospectus, these companies will frequently include a clause that specifies a lock-up period and subsequent lock-up period expiration date. During the lock-up period, individuals that bought shares during the IPO process are prohibited from selling their shares on the secondary market for a period of time that typically ranges from 90 to 180 days. A hedge fund may institute a similar lock-up period and lock-up period expiration to allow a fund manager to generate a large return without concern of capital leaving the fund.

Although proponents of market timing pay close attention to IPO lock-up period expirations as an opportunity for both long and short sellers, there is a vocal group that argues against the need for lock-up periods at all. These proponents of the Efficient Market Hypothesis (EMH) argue that an efficient market will take into account information related to a stock and that the market is constantly accounting for that information in the share price. The theory goes on to express that any new information is immediately factored into the stock price, thus eliminating the opportunity for an individual or institutional investors to time the market. Any abnormal stock return can occur only through investing in higher risk stocks.

Introduction

For a company or hedge fund to go public, they have to raise private equity. For a hedge fund, this includes inviting investors to invest in the fund and for private companies, this typically takes place by the issuance of an initial public offering (IPO). In both cases, however, there is a significant risk of unfavorable price movement if investors were to pull their money out of the fund or stock too quickly. This is why most hedge funds and IPOs include a lock-up period. During this period, investors and shareholders are prohibited from buying and selling shares. The lock-up period expiration, therefore, is a closely watched event for investors who are following IPO stocks because the period around the lock-up expiration is usually marked by high trading volume and significant price movement. This article will go into detail about what a lock-up period is and how it is different for a hedge fund as opposed to an initial public offering. The article will also review why they are needed if they are legally required, how they differ from the quiet period expiration date, and perhaps most importantly – and controversially – do they really work?

What is a lock-up period?

A lock-up period (also known as a lock-up agreement) is a period of time (usually between 90-180 days) when investors are not allowed to buy or redeem shares. Lock-up periods can apply to hedge funds and initial public offerings. A hedge fund lock-up period will be linked to the underlying investments of the fund. If a hedge fund is comprised of mostly stocks with high liquidity, there may be a short lock-up period of 90 days. If the fund is considered to be more distressed (i.e. it is invested in low volume securities such as loans or other forms of debt), they may have a much longer lock-up period. Once the hedge fund lock-up expiration passes, investors can redeem shares according to the schedule laid out by the hedge fund. However, investors are generally required to give 30- to 90-day notice. This is to allow the hedge fund manager to liquidate underlying securities as needed. Each investor’s lock-up period expiration is tied to the date they began investing with the fund. This limits the amount of liquidation that can take place at one time.

An IPO lock-up period is a clause written into the prospectus of a company that accompanies its initial public offering (IPO). The lock-up period prohibits company insiders and other individuals who purchased stock as part of the IPO from selling their ordinary shares on the secondary market. Once the lock-up period ends (a date known as the lock-up period expiration), those shareholders can buy and sell their ordinary shares as they please.

Why is a lock-up period needed for a hedge fund?

The lock-up period is needed in order for hedge fund managers to attempt to maximize the return for investors. This can happen because, during the lock-up period, they can make an investment in securities that support the fund's goals without having to be concerned about investors redeeming shares. Without a lock-up period, the fund manager would have to ensure there was a large amount of cash or cash equivalents available which would take away from the available money to invest, thus lowering the potential return.

Why is a lock-up period needed for an IPO?

The theory behind an IPO lock-up period is that company insiders (which includes a company’s founders/owners, managers and employees) usually own a volume of shares that is disproportionate to the general public. After the initial public offering, these insiders – which can also include institutional investors, venture capitalists, and other early investors – have the most to gain from selling their shares at the higher share price created by the IPO.

If investors who bought shares of stock during the IPO were to suddenly share their shares when the stock began publicly trading, it would force the stock price down as more total shares outstanding enter the market. This increase in negative trading volume could have a long-term impact on the stock because it may curb the appetite of potential investors.

Some economists, particularly those who promote an efficient market, question if there is enough empirical evidence to support the need for a lock-up period. However, they have become a de facto clause in the prospectus for every IPO stock. The most common reasons for having a lock-up period (and a defined lock-up period expiration) include:

  1. It provides a period of time to "bridge the gap" created by information that is available to insiders prior to the IPO but is not available to the general public until after the IPO. In some cases, certain company insiders may have to wait for a period of time after the lock-up period expiration to sell their shares. This can occur during a company’s earnings season because insiders may have access to information about the company that could be construed as insider trading in the event that they were to sell their shares.
  2. It is sometimes thought of as a way for a company to create a signal regarding the quality of its stock. From Wall Street to main street, perception is reality. Most company insiders and early investors are simply looking to reward themselves with the profit that comes from taking their company public. However, to the public, this insider selling happening immediately after the initial public offering could appear to be a sign that the company is in trouble.

Are company’s legally required to set lock-up periods?

The short answer is no. In fact, a lock-up period is not required by any regulatory body including the Securities & Exchange Commission (SEC). However, they have become an almost de facto standard that is either self-imposed by the company who is launching the initial public offering or is required by the investment bank that is underwriting the IPO.

How is a lock-up period expiration different from a quiet period expiration?

Although both the lock-up period expiration date and the quiet period expiration date are used to help prevent abnormal stock returns, they happen at different times in the IPO process. The lock-up period expiration must be reached before selling activity can take place, the quiet period expiration date must be reached before buying can take place. The IPO lock-up period starts after the initial public offering is complete and goes into effect for a period of time while ordinary shares are sold on the stock exchange. The IPO quiet period takes place before the initial public offering is issued. This is a time when management and marketing teams from the company releasing the IPO are prohibited from releasing news to the public. Part of this is to prevent the real or perceived appearance of insider trading.

Do lock-up periods work?

This is a hotly debated topic within the investment community. The debate centers around the Efficient Market Hypothesis (EMH) theory. The EMH theorizes that a company’s share price reflects any and all information about the stock. Therefore, stocks will always trade at their fair value on their respective stock exchange. Proponents of the EMH would state that fundamental and technical analysis cannot be used to generate abnormal stock returns. They claim the only way to get higher returns is to purchase securities and investments that contain more risk.

According to the EMH, the lock-up period expiration is a matter of public record in the prospectus released with the IPO. With that in mind, an efficient market will take this expiration date into account before it actually happens. For example, if Company XYZ issues an IPO with a 90-day lock-up period expiration, the EMH would theorize that institutional investors and venture capitalists will automatically digest the knowledge of the IPO lock-up expiration date and initiate trading to move the share price accordingly. That way, when insider selling takes place after the lock-up expiration date occurs, the price impact will be negligible.

There is a semi-strong and a strong form of the EMH theory. The semi-strong form defines known information to be “all publicly available information”. This means that any individual can profit from that information because it is already in the public arena. The price impact of any new public information will be reflected in the company’s stock price almost immediately so a trader would have a difficult time profiting from that information. The semi-strong form would state that a lock-up period expiration date falls into the category of “publicly available information” and therefore would be incorporated into the stock price. Based on the semi-strong theory, the only way for an investor to generate higher stock returns would be to have information available to them before it became public.

The strong form defines known information to be “all pertinent information, both public and hidden”. Proponents of the strong form would claim that it was not possible for investors to generate abnormal stock returns even if they were trading on insider information.

On the other end of the argument are those investors who believe in market timing as a way to select stocks that will outperform the market. For these investors, the lock-up period expiration date becomes an ideal tool to time the market and attempt to profit during a period with either long or short selling techniques based on the anticipated price movement.

The final word on lock-up period expiration

A lock-up period expiration date can be a significant event for investors who believe in the benefits of market timing. At the end of a lock-up period, there can be significant share price movement and higher trading volume as company insiders (which includes company founders/owners and executives as well as institutional investors and venture capitalists) look to take profit after being prohibited from selling shares during the lock-up period.

A lock-up period is also frequently assigned to hedge funds. This is done so the hedge fund manager can initiate trades in accordance with the fund’s objectives without being concerned about the fund having a flight of capital from investors.

Although lock-up periods are not a legal requirement they have become a de facto standard that a company will issue voluntarily or to comply with the underwriters of the IPO. In either case, the lock-up period in an effort to protect the share price from the significant downward price movement that can occur when the early investors dump their shares. It also serves to prevent any appearance of insider trading.

The idea of using lock-up expiration dates as a form of market timing to generate abnormal stock returns is widely debated in the industry. Proponents of an efficient market use the Efficient Market Hypothesis (EMH) to claim that the market takes into account all publicly known information or any information both public and private into the stock price. Therefore, these investors would claim that the share price of an IPO stock is already pricing in the lock-up period expiration and subsequent activity surrounding it.

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