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

Abstract: We examine the effects of the Securities and Exchange Commission (SEC)-manded 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 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.

Author(s): KARL B. DIETHER, KUAN-HUILEE, and INGRID M. WERNER

Short-Sale Price Tests and Market Quality.PDF