Analysis Of The Effect Of IPO Lock-up Period Expiration In Chinese Stock Market

This paper elaborates the internal mechanism and external manifestations of the effect of IPOlock-up period expiration in Chinese stock market, and put forward some policy recommendations.This paper divides investors into3types. They are IPO restricted share shareholders,long-term investors and short-term investors. By analyzing the behavior patterns (or preferences)of various types of investors, we can determine their utility function. By building a static gamemodel of complete information, a static game model of incomplete information and a dynamicgame model of incomplete information, we can analyze the investment strategy of the three typesof investors in the principle of utility maximization under various assumptions.In the empirical part, we analyze how does IPO lock-up period expiration impact on China Ashare index in regression. We analyze how do IPO lock-up period expiration and the event ofincreasing or decreasing of shareholdings by the original shareholders impact on the stock prices.We also analyze the effect of increasing shareholdings before IPO lock-up period expiration, andcompare the effect of IPO lock-up period expiration with decreasing shareholdings.In the end, we propose that the government should encourage extending the IPO lock-upperiod, strengthen information disclosure, increase restrictions to limit selling, adjust the financingstructure and encourage merging and reorganization.The following are the main conclusions of this paper:1. The number or market value of shares which IPO lock-up period is below3years is animportant reason for the fluctuation of the stock index.2. IPO lock-up period expiration has a significant negative effect on the stock prices in a shorttime, and its impact is mainly concentrated before IPO lock-up period expiration.3. Market value or number of restricted shares lifted and stock valuation are negativelycorrelated with CAR of stocks before and after IPO lock-up period expiration. After IPO lock-upperiod expiration, lifted stocks belong to majority stockholders have a high CAR. The moreproportion of the company’s total capital do lifted shares make up, the less CAR they have beforeIPO lock-up period expiration, and the more CAR they have after IPO lock-up period expiration.4. Stock prices will fluctuate more intensely when IPO shareholders increase shareholdingsbefore IPO lock-up period expiration.5. Decreasing shareholdings after IPO lock-up period expiration has a greater and longernegative effect on the stock prices, compared with the effect of IPO lock-up period expiration.