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Languages : en
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Author: Gordon J. Alexander
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Languages : en
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We examine the impact of Rule 10a-1, the Uptick Rule, on short-sell orders sent to the NYSE. The principal finding is that the execution quality of short-sell orders is adversely affected by the Uptick Rule, even when stocks are trading in advancing markets. This is inconsistent with one of the three stated objectives of the rule, i.e., to allow relatively unrestricted short selling when a firm's stock is advancing so that the rule does not affect price discovery during such times.
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Category :
Languages : en
Pages : 193
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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: Kathleen Schwind
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Category : Short selling (Securities)
Languages : en
Pages : 68
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Author: Spencer A. Montgomery
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Languages : en
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This paper examines the effects of short sale deregulation on market quality by examining the implementation of regulation SHO, which removed the uptick rule for a subset of pilot securities. This created an exogenous event, allowing a direct examination of the effect of short sale constraints on the markets. This study builds on Roll and Subrahmanyam (2010) in examining the skewness of bid-ask spreads as they represent information asymmetry and market maker competition. We find that the price tests conducted in regulation SHO evenly effected both pilot and non-pilot securities, including a widening of bid-ask spreads and a decrease in spread skewness. These findings suggest that short sellers are shifting from liquidity demanders in the market to liquidity providers in the markets. This change is associated with positive effects in the price discovery process and overall market quality.
Author: Sean Foley
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Category : Capital assets pricing model
Languages : en
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Author: Gordon J. Alexander
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Languages : en
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The U. S. Securities and Exchange Commission is committed to having exchanges fully implement decimal pricing by April 9, 2001, and is also considering revising the Uptick Rule. We consider the likely impact of the pending smaller tick size associated with decimalization on the efficacy of this rule by examining the execution quality of NYSE short-sell orders immediately before and after the tick size was reduced from 1/8th to 1/16th in 1997. We conclude that, in general, short market orders will receive better execution after decimalization, but at-the-quote limit orders will receive worse execution, and suggest revisions to the Rule.
Author: United States. Securities and Exchange Commission
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Category : Securities
Languages : en
Pages : 116
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Author: United States. Securities and Exchange Commission
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Category : Securities
Languages : en
Pages : 1048
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Author: Merritt B. Fox
Publisher:
ISBN: 9781982966850
Category : Securities
Languages : en
Pages : 476
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