The Impact of Options on Stock Price Performance Around the Expiration of Share Lockup Provisions
Studies by Field and Hanka (2001) and others have documented negative excess returns following the expiration of IPO lockup arrangements and assert they are due to selling pressure as insiders unwind positions after the lockup expiration. The existence of options trading prior to the lockup expiration however would allow insiders to hedge their positions and should result in lower excess volume and smaller price impacts after the unlock date. We examine price and volume behavior around 400 IPO lockup expirations between 2000 and 2001. For the 64 firms for which options traded prior to the unlock date, we find lower abnormal volume prior to the lockup expiration and positive abnormal returns in the two days following the unlock date, indicating that the presence of options trading has an impact on price behavior around the lockup expiration date.