The Suitability Rule, Investor Diversification, And Using Spread To Measure Risk

30 Pages Posted: 2 Feb 2000  

Richard A. Booth

Villanova University Charles Widger School of Law

Abstract

This article reviews the state of the law regarding actions against broker-dealers based on the NASD suitability rule and similar theories, summarizes the theory and practice of investor diversification, explains the motivations that may lead a broker to recommend excessively risky securities and investment strategies, and discusses the various methods that may be used to quantify or compare risk, focusing in particular on how the bid-ask spread may be used as a forward-looking surrogate for the direct measurement of risk.

Suggested Citation

Booth, Richard A., The Suitability Rule, Investor Diversification, And Using Spread To Measure Risk. Business Lawyer, Vol. 54, Pp. 1599-1627, 1999. Available at SSRN: https://ssrn.com/abstract=200388

Richard A. Booth (Contact Author)

Villanova University Charles Widger School of Law ( email )

299 North Spring Mill Road
Villanova, PA 19085
United States
6105197068 (Phone)
610595672 (Fax)

HOME PAGE: http://www1.villanova.edu/villanova/law/staffadmin/Faculty%20Directory/biodetail.html?mail=booth@law

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