DEFINITION of 'Market Overhang'

An observational theory stating that in certain stocks at certain times, there is a buildup of selling pressure. This occurs as a combined result of sales and a strong wish to sell among those who still hold the stock but fear that selling it may cause further declines. Depending on the overall liquidity in the stock, a market overhang can last for weeks, months or longer. Market overhang usually relates to trading in one security but can also apply to larger areas of the market, such as an entire sector.

BREAKING DOWN 'Market Overhang'

Market overhang is most often felt and created by institutional investors, who may have a large block of shares they wish to sell and are aware of high selling interest across the market for the stock. Another scenario arises when a large shareholder is thought to be looking at selling his or her stake. This creates an overhang in the stock, which prevents investors from buying the stock until the large shareholder is done selling his stake. Market overhang can also develop in a poorly-performing IPO when the lockup period ends and insiders look to unload their recently-acquired shares.

RELATED TERMS
  1. Overhang

    A measure of the potential dilution to which a common stock's ...
  2. Debt Overhang

    A debt burden that is so large that an entity cannot take on ...
  3. Sell Signal

    An event or condition that alerts investors to dispose of a particular ...
  4. IPO Lock-Up

    A contractual caveat referring to a period of time after a company ...
  5. Lock-Up Agreement

    A legally binding contract between the underwriters and insiders ...
  6. Sell Plus

    An order to sell a quantity of stock at a price that is above ...
Related Articles
  1. Investing

    6 Proven Methods For Selling Stocks

    These common techniques can help investors take some of the emotion out of deciding when to sell a stock.
  2. Investing

    When To Sell Stocks

    Buying at the right price determines profit, but selling at the right price locks it in.
  3. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  4. Investing

    When To Sell Stocks

    Selling stock at the right price and time ensures the preservation of gains, and it reduces the chance of incurring major losses.
  5. Insurance

    IPO Lock-Ups Stop Insider Selling

    Ownership plays a key role when companies go public. Find out how.
  6. Investing

    5 Tips On When To Sell Your Stock

    Many investors say knowing when to buy a stock is no big deal: It’s knowing when to sell that’s difficult. Here are five tips to help make the call.
  7. Investing

    Capital One Earnings on Tap: What to Expect? (COF)

    Credit quality has been an overhang for the company. And its something the market continues to keep an eye on.
  8. Investing

    Wall Street's Sell Side

    The sell side of the financial industry creates, promotes, analyzes and sells securities.
  9. Investing

    5 Tips On When To Sell Your Stock

    Learn when it might be time to sell your stock.
  10. Investing

    Short Selling Risk Can Be Similar To Buying Long

    If more people understood short selling, it would invoke less fear, which could lead to a more balanced market.
RELATED FAQS
  1. What is an IPO lock-up period and how long is it?

    An initial public offering (IPO) lock-up period is a contractual restriction that prevents insiders who are holding a company's ... Read Answer >>
  2. Why is short selling illegal in some countries but legal in the U.S.?

    Discover why many countries around the world banned the practice of short selling financial stocks and why the United States ... Read Answer >>
  3. Under what circumstances is short selling advisable?

    Find out when short selling a stock is profitable and what an investor should keep in mind before deciding to pursue a short ... Read Answer >>
  4. If I believe retail sector companies are overvalued how can I profit from a fall ...

    Examine the various trading strategies that can be employed by an investor who anticipates a decline in stock prices in the ... Read Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    Learn how an investor can profit from a fall in the utilities sector by employing speculation methods such as short selling ... Read Answer >>
  6. Can you short sell ETFs?

    ETFs (an acronym for exchange-traded funds) are treated like stock on exchanges; as such, they are also allowed to be sold ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center