30 Pages Posted: 2 Feb 2000
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: 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