The Role of Pilot Studies in Financial Regulation

32 Pages Posted: 15 Dec 2021

See all articles by Lawrence Harris

Lawrence Harris

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

Charles M. Kahn

University of Illinois, Urbana-Champaign; Bank of Canada; Federal 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: December 1, 2021

Abstract

Financial regulators must consider the benefits and limitations of pilot studies when pursuing evidence-based decision-making. Although pilot studies may generate new knowledge, they are expensive and often flawed by serious selection and spillover problems. Instead, regulators can often effectively evaluate a proposed regulation’s potential impact by analyzing archival data or applying theory based on well-accepted economic principles. We discuss why regulators and industry participants sometimes call for pilot studies with little scientific value. We conclude with recommendations for regulators concerning the use of pilot studies in financial regulation. We illustrate our discussion with references to various SEC pilot studies.

Keywords: pilot studies, financial market regulation, Securities and Exchange Commission

JEL Classification: G18, G28, G38, L51, N20

Suggested Citation

Harris, Lawrence and Kahn, Charles M. and McDonald, Robert L. and Spatt, Chester S., The Role of Pilot Studies in Financial Regulation (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=3979297 or http://dx.doi.org/10.2139/ssrn.3979297

Lawrence Harris

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)

Charles M. Kahn (Contact Author)

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

Federal 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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