Restricted Shares Excess Returns Factors

Orthodox theory of finance suggests that the stock market is efficient, and abnormal returns can't be earned by any information including insider information. However, in the real world, the phenomenon such as calendar window abnormal return can often be seen. The stock market downward-sloping demand curve is a good abnormal return case.This paper describes the theoretical basis of efficient market, relative definitions about lockup expiration, and theory about downward-sloping demand curve and market manipulation. Using event study method, this paper makes a statistical analysis to the cumulative abnormal returns for the lockup expiration in different windows. Based on this result, this paper carries on an empirical study on the relationship between cumulative abnormal returns and ROE, the portion of the lockup expiration, and the market environment, using the cross-section regression method.The statistical analysis shows that the market goes down between 5 days and 1 day before the lockup expiration which is consistent with foreign market empirical study, and goes up between 19 days and 5 days before the lockup expiration which is not consistent with foreign market empirical study. The empirical study shows that pressure for market going down increased as the outstanding shares increased because of new stock, which means the downward-sloping demand curve exists and the market is not efficient. This paper also shows that the range of market fluctuating is closely related to market environment. In the bull market lockup expiration makes a large impact, and in the bear market lockup expiration makes a small impact. One possible explanation is that in the bull market investors are not concerned about the additional new shares; but in the bear market, investors worried more about the additional new shares, which increase the go-down pressure. This paper also shows that stock price will go up in the small-portion shareholder case, and if large-scale sell appears in three months the stock price will also go up after lockup expiration.This paper makes many policy suggestions such as enhancing effective supervision of lockup shareholders, increase the flexibility of lockup expiration, and so on. In the research outlook, this paper suggests that the change of lockup shareholders, high-frequency data and ultra-high frequency data will be future research directions.