It's SHO Time! Short-Sale Price Tests and Market Quality

We examine the effects of the Securities and Exchange Commission (SEC)-mandated temporary suspension of short-sale price tests for a set of Pilot securities. While short-selling activity increases both for NYSE- and Nasdaq-listed Pilot stocks, returns and volatility at the daily level are unaffected...

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Bibliographic Details
Published in:The Journal of finance (New York) 2009-02, Vol.64 (1), p.37-73
Main Authors: DIETHER, KARL B., LEE, KUAN-HUI, WERNER, INGRID M.
Format: Article
Language:English
Subjects:
Bid prices
Business orders
Equity
Finance
Financial analysis
Financial portfolios
Market prices
Nasdaq Composite Index
Price systems
Price volatility
Pricing
Rates of return
Securities markets
Short sales
Stock exchanges
Stock prices
Stocks
Studies
Trade
Volatility
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Summary:We examine the effects of the Securities and Exchange Commission (SEC)-mandated temporary suspension of short-sale price tests for a set of Pilot securities. While short-selling activity increases 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 Nasdaq-listed Pilot stocks. The results suggest that the effect of the price tests on market quality can largely be attributed to distortions in order flow created by the price tests themselves.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2008.01428.x