The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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It's SHO Time! Short‐Sale Price Tests and Market Quality
Published: 01/23/2009 | DOI: 10.1111/j.1540-6261.2008.01428.x
KARL B. DIETHER, KUAN‐HUI LEE, INGRID M. WERNER
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.