Statement on Evidence-Based Regulation and the Limits of Pilot Studies

12 Pages Posted: 10 Jul 2020

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Financial Economists Roundtable; Interactive Brokers, Inc. (IBKR)

Charles M. Kahn

University of Illinois, Urbana-Champaign; Bank of Canada; Feseral Reserve Bank of Saint Louis

Robert L. McDonald

Northwestern University - Kellogg School of Management

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business

Date Written: October 25, 2019

Abstract

Financial regulators, when pursuing the goals of evidence-based decision making, should recognize both the benefits and limitations of the use of regulatory pilot studies. While pilot studies have potential to generate new knowledge about financial markets, regulators often can effectively evaluate the potential impact of a proposed regulation by analyzing archival data obtained from other markets or from similar situations in the past. They also can apply theory based on well-accepted economic principles.

We discuss why regulators and industry participants sometimes call for pilot studies that have little scientific value. We discuss some limitations of pilot studies that regulators should consider before proposing them. Finally, we conclude with a set of recommendations concerning the use of pilot studies in financial regulation.

Keywords: Pilot studies, financial market regulation and policy, Securities and Exchange Commission

JEL Classification: G18, G28, G38, K23

Suggested Citation

Harris, Lawrence and Kahn, Charles M. and McDonald, Robert L. and Spatt, Chester S., Statement on Evidence-Based Regulation and the Limits of Pilot Studies (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3629339 or http://dx.doi.org/10.2139/ssrn.3629339

Lawrence Harris (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)

Institute for Quantitative Research in Finance (the Q-Group) ( email )

Q Group
P.O. Box 1540
Valley Stream, NY 11582
United States

HOME PAGE: http://www.q-group.org

Financial Economists Roundtable ( email )

United States
3232441154 (Phone)

HOME PAGE: http://www.financialeconomistsroundtable.com/

Interactive Brokers, Inc. (IBKR) ( email )

209 South LaSalle Street
10th Floor
Chicago, IL 60604
United States

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
340 Wohlers Hall
Champaign, IL 61820
United States

HOME PAGE: http://kahnfrance.com/cmk/

Bank of Canada

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Feseral Reserve Bank of Saint Louis

411 Locust St
Saint Louis, MO 63011
United States

Robert L. McDonald

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8344 (Phone)
847-491-5719 (Fax)

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-8834 (Phone)
412-268-6689 (Fax)

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