Keywords

short-sales, SEC, regulation, market quality, NYSE, Nasdaq

Abstract

We examine the effects of the SEC mandated temporary suspension of short-sale price-tests for a set of Pilot securities. While short-selling activity increased both for NYSE and NASDAQ-listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE-listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for NASDAQlisted Pilot stocks. The results suggest that the effect of the price-tests on market quality can largely be attributed to the distortions in order flow created by the price-tests in the first place. Therefore, we believe that the price-tests can safely be permanently suspended.

Original Publication Citation

It’s SHO Time! Short-sale Price Tests and Market Quality, 2009, with Kuan-Hui Lee and Ingrid M. Werner, Journal of Finance, 64 (1), 37–73.

Document Type

Peer-Reviewed Article

Publication Date

2007

Publisher

Journal of Finance

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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