Editor’s note: Interested in learning more about equity compensation, the best time to exercise options, and the right company stock selling strategies? Read our Guide to Equity & IPOs

Our analysis of post-lockup stock price data shows that, on average, one of the worst days to sell is on the day immediately following the lockup expiration.

We found that companies that had IPOs saw their stock prices decline, on average, by more than 1% that day, following an average 10% decline over the preceding three months. On average, IPO stocks recover from the trough of that day in the next day or two, and some – as highlighted in this related post – sustain their rebounds over time.


Because many employees emerge from an IPO with a significant amount of their wealth tied up in their company’s stock, they are in a position of having to determine how to diversify their portfolios after the lockup — the time period immediately after an IPO during which insiders cannot sell.

Of course, not all stock prices rebound even immediately after that post-lockup trough. The bottom quintile of stock-price performers in the 20 days before and after the lockup doesn’t ever rebound during that time period. On average, however, most stocks hit a trough on the first day — and if you can avoid selling at the trough, do so.


Here’s how we reached this conclusion: We calculated the one-day return and one-day volume growth on the first day of lockup expiration for each of the 254 tech IPOs from 2000-2011. We also took the average across all the IPOs. As a reference point, we calculated the one-day return of the S&P 500® on the same days, and took the average.

As the following graph shows, the S&P 500 is essentially flat, whereas the IPOs’ return is -1.15%. In the meanwhile, the IPOs’ trading volume rose by 178% on average, i.e., almost tripling the trading volume compared with that of the lockup period.

It’s hard to say exactly what is behind the post-lockup trough. In some cases, where a company’s stock price has declined over the previous three months, employee-insiders may be dumping their shares. In other cases, employees may simply have decided to escape the concentrated risk of having a portfolio that consists mainly of their company’s stock as soon as they can.


In either case, however, the lesson is clear. On average, it is smart not to panic and sell your shares as soon as possible.

Graphics by Jared Jacobs.

Subscribe to our blog
Please fill out this field.
You've successfully subscribed to our blog.


Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.
This article is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.

The analysis contained in the graphs used to illustrate this blog post are based on publicly available data reviewed by Wealthfront for the years 2000 to 2011; past performance is no guarantee of future results. The S&P 500 (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Wealthfront. Copyright © 2015 by S&P Dow Jones Indices LLC, a subsidiary of the McGraw-Hill Companies, Inc., and/or its affiliates. All rights reserved. Redistribution, reproduction and/or photocopying in whole or in part are prohibited Index Data Services Attachment without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

About the author(s)

Qian Liu is the lead architect of Wealthfront’s algorithms and methodologies used to implement our portfolio management and tax-optimization software and develops much of our investor research materials. Before joining Wealthfront in 2009, Qian worked on trading and portfolio analytics at Credit Suisse. Qian is a CFA charterholder and member of the CFA Society of San Francisco. Qian earned her MS and PhD in Computer Science focusing on Machine Learning from University of Pennsylvania where she researched computational gene prediction using statistical machine learning models. She received her BS in Computer Science from Tsinghua University. View all posts by Qian Liu, PhD

Related tags

IPO, IPO lockup, Qian Liu, technology