The Market Reactions To The Unlocking Events Of Non-tradable Shares In The GEM

This article focuses on the unlocking events of non-tradable shares in the GEM of China and observes the market reactions before and after them. We selected the cumulative abnormal return (CAR) as indicators of market reactions, and analyze their influence factors through game models, descriptive statistics and linear regression model (LRM).The unlocking events of GEM-listed companies make negative impacts on the market. In the observation period, the average CAR falls down before and after the unlocking day, but rebounds remarkably on that day. During the 10 days before the unlocking day, the CAR value is significantly negative (-1.85%). It means the tradable shareholders regard this event as a "bad message" and react in advance. In general, the higher the proportion of the unlocking shares is, the more the CAR falls, and it behaves better in bull market than bear market. The tradable shareholders are more sensitive to the non-controlling non-tradable shareholders, for the executives and private equities are likely to sell their shares after unlocking. In addition, the companies which are consistently high rated by the securities companies and high valued are relatively defensive. The average abnormal return on the unlocking day is obviously positive (+0.72%) and significantly associated with the ratings of the securities companies. The higher the rating is, the more the abnormal return is. During the 20 days after the unlocking day, the CAR value is also significantly negative (-0.95%). It means the pre-non-tradable shareholders begin to sell their shares, and part of the tradable shareholders will choose to sell too. In general, the CAR values are positively correlated with ratings and negatively correlated with P/E, and in the same the companies which are consistently high rated and high valued are relatively defensive. The non-controlling shareholders are more prefer to sell for cash, while the controlling shareholders may need to maintain his control of the company, so it performs better in the controlling shareholders’unlocking events. The proportion of the unlocking shares doesn’t inference the CAR value linearly, the CAR value falls more in the proportion of more than 30% or 5～10%. The market value of the unlocking shares doesn’t have significant impact for its relatively small size. But in some extremely huge cases, it causes a big decline of CAR.