Abnormal Returns At Lockup Expiration: An Empirical Assessment Of Nordic IPOs

Joakim Sylvest Helm & Peter Sommer Fabricius

Student thesis: Master thesis


The purpose of this thesis is to examine whether abnormal stock returns occur when lockup agreements of Nordic IPOs expire. Furthermore, our objective is also to assess potential ex ante cross-sectional predictors that may impact such abnormal returns. We have structured our crosssectional hypotheses according to three overall classifications of characteristics, namely 1) lockup characteristics, 2) IPO characteristics, and 3) lockup period characteristics. When performing an event study on a sample of 141 Nordic IPOs that have taken place from 2009 to 2017, we find significant evidence of abnormally negative price reactions at lockup expiration. Specifically, our event study shows that Nordic IPOs on average experience a significantly negative cumulative abnormal return of -1.1% surrounding lockup expiration. This bears the highly noteworthy and focal implication of invalidating the semi-strong form of the efficient market hypothesis. With this finding, we contribute to the existing field of research by (to our knowledge) being one of the first European studies to observe significant evidence of abnormally negative stock returns when lockup agreements expire. We furthermore provide a thorough analysis and discussion that discredits any exploitative opportunities of risky arbitrage, as the magnitude of the average cumulative abnormal return does not surpass concurrent transaction costs. In addition, when conducting a cross-sectional analysis of ex ante explanatory variables, we find evidence of three statistically and economically significant characteristics. Here, our results suggest that more negative abnormal returns will on average transpire when 1) a greater percentage of shares are subject to lockup relative to the overall free float, 2) stock prices show high levels of volatility leading up to lockup expiration, and 3) consecutively positive price ramps are observed prior to lockup expiration. We attribute our findings to the underlying implications of the downward-sloping demand curve and distortive effects that stem from information asymmetry and overconfident and contrarian investor beliefs.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages146
SupervisorsCaspar Rose