Market Information and Price Clustering: Evidence from SEC Rule 201

33 Pages Posted: 9 Jan 2015 Last revised: 14 Dec 2018

See all articles by Ryan Davis

Ryan Davis

University of Alabama at Birmingham

Stephen Jurich

Dalton State College

Brian Roseman

Oklahoma State University - Department of Finance

Ethan Watson

University of North Carolina (UNC) at Wilmington

Date Written: January 1, 2015

Abstract

We provide a novel test of information-based theories of price clustering by examining trade, order, and inside quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering, and in turn, more appropriately test the negotiation hypothesis. We find evidence of increased price clustering for trades, orders, and inside quotes during short-sale restrictions. Additionally, we document a dramatic increase in price clustering immediately before a Rule 201 trigger that is reduced once the restriction is triggered suggesting that the restriction may have a stabilizing effect.

Keywords: Price clustering, orders, short selling

JEL Classification: G10, G14, G18

Suggested Citation

Davis, Ryan and Jurich, Stephen and Roseman, Brian and Watson, Ethan, Market Information and Price Clustering: Evidence from SEC Rule 201 (January 1, 2015). Journal of Financial Services Research, Vol. 54, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=2546373 or http://dx.doi.org/10.2139/ssrn.2546373

Ryan Davis

University of Alabama at Birmingham ( email )

Birmingham, AL 35294
United States

Stephen Jurich

Dalton State College ( email )

Dalton, GA 30720
United States

Brian Roseman

Oklahoma State University - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078
United States

Ethan Watson (Contact Author)

University of North Carolina (UNC) at Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States

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