Should you worry about the day an IPO’s lock-up ends?

When a company goes public, insiders usually agree not to sell for about six months. The day that promise ends is often treated as a danger date for anyone holding the stock. Equibles read the lock-up terms in 440 IPO prospectuses from January 2024 to October 2026 to see what actually happens.

Six months is still the norm: 392 of the 440 lock up insiders for 180 days or six months. But the deals differ in ways worth knowing. Among the 43 IPOs with the most trading in their first month, 14 let some locked shares sell early. Among the 320 with the least, 3 did. And on the Nasdaq Capital Market, 154 of 180 lock-ups bind only directors, officers and the largest shareholders, so other holders in those deals could sell from day one.

As for the day itself, the typical stock didn’t fall. Across 330 standard lock-ups, the median return over the three trading days around the end beat an S&P 500 fund by 0.7%, and 154 of the 330 fell. The date is printed in the prospectus months ahead, so anyone expecting selling can trade before it. Volume moved more than price: in deals on the larger exchanges where substantially all holders were locked up, it ran about 1.34 times the prior month’s average.

The lesson I took from this is to read the terms rather than watch the calendar. Has a lock-up date ever changed what you did with a recent IPO?

The full study is here.

Data: Securities and Exchange Commission prospectuses and daily prices, processed by Equibles.