(How) Does the Uptick Rule Constrain Short Selling? PDF Download
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Author: Gordon J. Alexander
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Regulation SHO is designed to allow for tests of how the uptick rule effects trading, as it temporarily suspends the rule for a pilot sample of NYSE-listed stocks. Relative to a matched control sample, pilot stocks have similar rates of return, short trading volume, price volatility, and measures of market efficiency. At the microstructure level, short sales for pilot stocks have (1) smaller trade sizes but more trades, (2) lower execution prices, (3) larger price impacts, and (4) similar effective spreads. Interestingly, these orders face significantly larger quoted spreads along with significantly smaller bid and, more notably, ask depths.
Author: Gordon J. Alexander
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Regulation SHO is designed to allow for tests of how the uptick rule effects trading, as it temporarily suspends the rule for a pilot sample of NYSE-listed stocks. Relative to a matched control sample, pilot stocks have similar rates of return, short trading volume, price volatility, and measures of market efficiency. At the microstructure level, short sales for pilot stocks have (1) smaller trade sizes but more trades, (2) lower execution prices, (3) larger price impacts, and (4) similar effective spreads. Interestingly, these orders face significantly larger quoted spreads along with significantly smaller bid and, more notably, ask depths.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 193
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Book Description
For many years, academics generally viewed uptick rules as short sale constraints that contribute to stock overvaluation and hamper stock price efficiency. Recently adopted Regulation SHO provides us with a natural experiment to study the impact of the suspension of uptick rules on various market quality measures in a controlled environment. In the first essay, I investigate the impact of removing short sale price test rules on stock returns and find that on the NYSE, removing the tick-test rule mitigates stock overvaluation. On the NASDAQ, however, lifting the bid-test rule goes beyond correcting such overvaluation. It shows that prices of high-dispersion stocks tend to be depressed relative to prices of low-dispersion stocks. I also examine the relationship between daily short selling activities and stock returns and find that on average short sellers are more likely to be value-driven "contrarians" who short sell following high stocks returns. In the second essay, I examine the information content of short selling around the release of analyst recommendations. By looking at the magnitude and the speed of price response to analyst downgrade recommendations, I provide intra-day evidence supporting the documented assertion that suspension of the uptick rule helps improve stock price efficiency. For after-hour downgrades, pilot stocks respond quickly, with virtually all of the price response incorporated by the following open, while control stocks take an extra half hour after opening to fully reflect the new information. For downgrades that occur during normal trading hours, downgrade information is partially incorporated into pilot stock prices up to two hours before the recommendation is released, while control stocks take up to an hour and a half after the recommendation release to impound the information into stock price. Finally, short selling activities prior to the release of analyst recommendations indicate that short sellers capitalize on their private information associated with upcoming downgrades in the control sample, but such behavior seems to disappear in the pilot sample. I conjecture that, during the pilot program, short sellers were aware of the SEC's regulatory scrutiny of pilot stocks and thus avoided trading on their private information in those stocks.
Author: Alex Bylund
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Book Description
This paper explores the effects of uptick-related short-sale constraints first on the Glosten-Milgrom Model of Sequential Trade and then empirically on the stocks in the Russell 3000 index used by the SEC in the pilot program created by Reuglation SHO. Finally, the effect of uptick constraints on the relationship between the short and put call ratios is studied through the use of impulse response functions. Both the general and alternative uptick rules are found to decrease informational efficiency in hypothetical financial markets, have no statistically significant positive effects on key financial market metrics, and the change in sign from negative to positive in the response of the put call ratio to a positive shock in the short ratio may be seen as evidence of the use of the options market to avoid short-sale constraints.
Author: Gevorg Hunanyan
Publisher: Springer Nature
ISBN: 3658279567
Category : Business & Economics
Languages : en
Pages : 117
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Book Description
Gevorg Hunanyan develops a model that provides a comprehensive theoretical framework to study the consequences of short-sale constraints on the stability of financial markets. This model shows that overpricing of securities is solely attributable to the subjective second moment beliefs of investors. Thus, short-sale constraints prevent a market decline only if investors have low dispersion of beliefs, which in the model is embodied in the covariance matrix. Moreover, the author analyses the consequences of short-sale constraints on the investor’s portfolio selection, risk-taking behaviour as well as default probability. The author develops criteria that allow to analyse the effectiveness of short-sale constraints in reducing portfolio risk as well as default risk.
Author: Tom Taulli
Publisher: McGraw Hill Professional
ISBN: 9780071393942
Category : Business & Economics
Languages : en
Pages : 312
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Book Description
Publisher Description
Author: United States. Securities and Exchange Commission
Publisher:
ISBN:
Category : Securities
Languages : en
Pages : 116
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Book Description
Author:
Publisher: Academic Press
ISBN: 0123877253
Category : Business & Economics
Languages : en
Pages : 625
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Book Description
This comprehensive examination of short selling, which is a bet on stocks declining in value, explores the ways that this strategy drives financial markets. Its focus on short selling by region, its consideration of the history and regulations of short selling, and its mixture of industry and academic perspectives clarify the uses of short selling and dispel notions of its destructive implications. With contributions from around the world, this volume sheds new light on the ways short selling uncovers market forces and can yield profitable trades. Combines academic and professional research on short selling in all major financial markets Emphasizes details about strategies, implementations, regulation, and tax advantages Chapters provide summaries for readers who want up-to-date maps of subject landscapes
Author: Thierry Foucault
Publisher: Oxford University Press
ISBN: 0197542069
Category : Capital market
Languages : en
Pages : 531
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Book Description
"The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Author: Gustavo Grullon
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Book Description
We use a regulatory experiment (Regulation SHO) that relaxes short-selling constraints on a random sample of US stocks to test whether capital market frictions have an effect on stock prices and corporate decisions. We find that an increase in short-selling activity causes prices to fall, and that small firms react to these lower prices by reducing equity issues and investment. These results not only provide evidence that short-selling constraints affect asset prices, but also confirm that short-selling activity has a causal impact on financing and investment decisions.
Author: K. Alexander
Publisher: Edward Elgar Publishing
ISBN: 0857936638
Category : Law
Languages : en
Pages : 361
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Book Description
Law Reform and Financial Markets addresses how law reform can be used to support strong financial markets and draws on the Global Financial Crisis as a case study. This edited collection reflects recent developments, including the EU institutional reforms and Dodd-Frank Act 2010. The different contributions adopt a range of theoretical, contextual, and substantive perspectives, examine different domestic, regional, and international contexts and assess public and private law frameworks in considering how legal and regulatory reforms can be most effectively designed for strong financial markets. This comprehensive book will appeal to academics and postgraduates in the field of financial regulation and in cognate fields, including finance and economics, as well as to regulators and policymakers.
