Pre-Analysis Plan for the REG SHO Reanalysis Project
60 Pages Posted: 5 Aug 2019 Last revised: 7 Oct 2019
Date Written: July 4, 2019
This is a pre-analysis plan for The Reg SHO Reanalysis Project, in which we will reassess primary results from selected recent accounting and finance papers, which exploit the randomized trial conducted by the Securities and Exchange Commission (SEC) from May 2, 2005 to July 6, 2007. As part of this trial, the SEC selected every third stock on the Russell 3000 index, based on trading volume during the year before the experiment was announced, and exempted these firms’ shares from the short-sale uptick rule and the test. Early studies of the experiment found minor effects on trading markets (e.g., SEC Office of Economic Analysis (2007), Diether et al (2009)), and led the SEC to rescind these short-sale restrictions. However, more recently, a large body of research has documented evidence for a wide variety of outcomes from the experiment, including increased open short interest, negative returns, reduced investment, reduced earnings management, increased audit fees, and much more. We undertook this project because we viewed most of these outcomes as implausible, given the modest expected impact of the short-sale restrictions on trading markets, limited publicity about the experiment (with no opposition from the affected firms that we could find), and early research consistent with small effects. In this proposed project, we will reassess three prominent, recent studies: Fang, Huang and Karpoff (2016), Grullon, Michenaud and Weston (2015), and Hope, Hu, and Zhao (2017). This pre-analysis plan provides details on our sample selection and the specific analyses we plan to carry out for the main results found in these three papers.
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