IPO impact on STOCK MARKET volatility

IPO . However , the US government extended this period to forty days , from twenty five days , in 2002 . The underand insiders of the company are prohibited from mentioning anything that is not in the company prospectus . They are also barred from carrying out research about the company . The purpose of the quiet period , is to give investors time to do assessment and let market forces work without interference . Towards the end of the 'quiet period , most investors anticipate the purchase of the stocks mainly due to advice from the under . This normally begins

at about ten days before the expiration of the 'quiet period . This results in increase in trading volume and subsequently a sharp increase in price of the stocks . If the market is efficient , the expiry of the 'quiet period should not lead to abnormal returns . The 'quiet period ' leads to high volatility and investors are advised to hold the shares until after the period (Mohan 2000 : 673

Another factor , during the IPO , that affects the volatility of the market is the 'lockup period . This is the time limit that insiders of a company are restricted from selling their shares , after an IPO depending on the instructions on the prospectus . Most companies have a period of at least six months in the case of large shareholders . The purpose of a 'lockup period ' is to allow for the market to develop on its own . This is more so because the stakeholders get the shares at a discounted price and stand to gain the most . After the expiry of that period , they are allowed to trade their shares according to the limits set by the Stock Exchange . According to Bradley 4

Jordan (2000 : 465-493 , most insiders sell their shares after the expiry of this period . Ten days after the lockup expires...