TY - JOUR
T1 - The effect of price tests on trader behavior and market quality
T2 - An analysis of Reg SHO
AU - Alexander, Gordon J.
AU - Peterson, Mark A.
PY - 2008/2
Y1 - 2008/2
N2 - Using data from Regulation SHO's pilot program, we examine how price tests affect trader behavior and market quality, which are areas of interest given by the US Securities and Exchange Commission in evaluating these tests. After comparing sampled matched pairs of pilot and control stocks, we find that the removal of price tests benefit traders by allowing them to trade more aggressively by placing orders that receive quicker execution. Furthermore, concerns about the suspension of price tests leading to a degradation of market quality are unfounded. The evidence therefore suggests unambiguously that such tests should be removed.
AB - Using data from Regulation SHO's pilot program, we examine how price tests affect trader behavior and market quality, which are areas of interest given by the US Securities and Exchange Commission in evaluating these tests. After comparing sampled matched pairs of pilot and control stocks, we find that the removal of price tests benefit traders by allowing them to trade more aggressively by placing orders that receive quicker execution. Furthermore, concerns about the suspension of price tests leading to a degradation of market quality are unfounded. The evidence therefore suggests unambiguously that such tests should be removed.
KW - Bid test
KW - Regulation SHO
KW - Short selling
KW - Uptick rule
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U2 - 10.1016/j.finmar.2007.06.002
DO - 10.1016/j.finmar.2007.06.002
M3 - Article
AN - SCOPUS:38049069744
SN - 1386-4181
VL - 11
SP - 84
EP - 111
JO - Journal of Financial Markets
JF - Journal of Financial Markets
IS - 1
ER -