Abstract: Based on the assumption that first-day IPO underpricing could generate information momentum and thereby increasing demands for the new issuing stocks,this paper models the relationship between lockup period and IPO underpricing. The model predicates that when the marginal information momentum induced by the IPO underpricing is large enough,the IPO underpricing is an increasing function of lockup rate and period. Using 137 locked IPOs issued in Shanghai and Shenzhen A share markets from 1998 to 2004,we find that the model's assumptions and conclusions are confirmed by the empirical tests. This implies that lockup period did not transfer firms quality information effectively. Depressing the non-rational fads for new issuing stocks or extending the lockup period,The lockup period may be used as a tool to send the quality information of firms.

Key words: lockup period, information momentum, IPO underpricing