Do Quiet Period and Lock-Out Period Affect the Risk of Initial Public Offerings?

This study explores the effect of lack of information and liquidity on market risk of publicly traded securities during the quiet period following an initial public offering (IPO). Broadly defined, the term quiet period refers to a period of time beginning 30 days before the IPO date and extending potentially up to a year after the IPO. During the quiet period, public statements that tend to hype the stock are prohibited. Publication of other information about the issuing company may be limited. This lack of information, sometimes called information asymmetry, may effect investors' perceptions of risk, and thus the stock's trading price.This study includes IPO's during the period June 4, 2007 through May 28, 2008. The post-IPO period was portioned into three phases: the quiet period (25 days), the lockout period (26 days to 6 months) and the post lock-out period (6 months to 12 months). Market risk was defined as volatility in stock prices and was measured by calculating the coefficient of variation (C.V.) of each of the subject companies' stock prices at the close of each trading day. The resulting three datasets were analyzed using Wilcoxon Analysis. The tests suggested that, consistent with expectations, statistically significant differences existed between risks during the quiet period, the lockout period and the post lock-out period