Another Day, Another Collar: An Evaluation of the Effects of NYSE Rule 80a on Trading Costs and Intermarket Arbitrage

Journal of Business, Vol. 71 No. 1, January 1998

Posted: 18 Apr 1998

See all articles by James A. Overdahl

James A. Overdahl

affiliation not provided to SSRN; U.S. Office of the Comptroller of the Currency

Henry McMillan

Pacific Mutual Life Insurance Company

Abstract

In 1990, the New York Stock Exchange amended its Rule 80A to restrict stock index arbitrage on days of large price movements. We find that Rule 80A significantly curtails--or "collars"--index arbitrage activity. In spite of this curtailment in index arbitrage volume, we find that Rule 80A appears to have had little overall impact on trading costs and intermarket linkage, although pricing discrepancies between the markets do appear to be eliminated less quickly. Our results are consistent with the hypothesis that information is conveyed from one market to the other by means other than formal arbitrage.

JEL Classification: G14, G29

Suggested Citation

Overdahl, James A. and McMillan, Henry, Another Day, Another Collar: An Evaluation of the Effects of NYSE Rule 80a on Trading Costs and Intermarket Arbitrage. Journal of Business, Vol. 71 No. 1, January 1998, Available at SSRN: https://ssrn.com/abstract=55060

James A. Overdahl (Contact Author)

affiliation not provided to SSRN ( email )

U.S. Office of the Comptroller of the Currency ( email )

Independence Square
250 E Street SW
Washington, DC 20219-0001
United States
202-874-3917 (Phone)

Henry McMillan

Pacific Mutual Life Insurance Company

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