Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement Revisited

20 Pages Posted: 29 Dec 2017 Last revised: 3 Feb 2018

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: December 26, 2017

Abstract

There are at least three possible times that changes in securities regulations are effective: (1) the date that the securities regulations are put forth (e.g., as in a pan-European Union directive); (2) the date that the new regulations are signed into law; and (3) the date at which new regulations are implemented with organizational agreements and computerized market surveillance, in order to detect the wrongdoing that is the subject of the new regulations. While it is not clear from Christensen, Hail, and Leuz (2016 Review of Financial Studies), the market abuse rules they examine are the same as in Cumming, Johan, and Li (2011 Journal of Financial Economics), with a difference in focus on the date: Christensen et al. (2016) pick date (2), while Cumming et al. (2011)pick date (3). Both papers study and find the exact same effect: regulatory change improves market liquidity. We explain the relative merits of the different approaches in this paper. Also, we explain that Christensen et al. (2016) mischaracterize Cumming et al. (2011) with respect to not examining changes in regulation over time, the use of dummy variables versus exchange trading rule legal indices Cumming et al. created, and difference-in-differences tests to study regulatory changes, among other things.

Keywords: Securities Regulation, Market Manipulation, Liquidity, Insider Trading, Broker-Agency Conflict, Law And Finance

JEL Classification: G12, G14, G18, K22

Suggested Citation

Cumming, Douglas J. and Johan, Sofia A., Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement Revisited (December 26, 2017). Available at SSRN: https://ssrn.com/abstract=3093580 or http://dx.doi.org/10.2139/ssrn.3093580

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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