Charles A. Dice Center WP No. 2006-13
45 Pages Posted: 22 Jun 2006
Date Written: August 14, 2007
We examine the effects of the SEC mandated temporary suspension of short-sale price-tests for a set of Pilot securities. While short-selling activity increased both for NYSE and NASDAQ-listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE-listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for NASDAQlisted Pilot stocks. The results suggest that the effect of the price-tests on market quality can largely be attributed to the distortions in order flow created by the price-tests in the first place. Therefore, we believe that the price-tests can safely be permanently suspended.
Keywords: Short-sales, SEC, Regulation, Market Quality, NYSE, Nasdaq
JEL Classification: G00, G18, G20, K22
Suggested Citation: Suggested Citation
Diether, Karl B. and Lee, Kuan-Hui and Werner, Ingrid M., It's Sho Time! Short-Sale Price-Tests and Market Quality (August 14, 2007). Fisher College of Business Working Paper No. 2007-03-002; Charles A. Dice Center WP No. 2006-13. Available at SSRN: https://ssrn.com/abstract=910614 or http://dx.doi.org/10.2139/ssrn.910614