Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201

Ryan L. Davis (), Stephen N. Jurich (), Brian S. Roseman () and Ethan D. Watson ()
Additional contact information
Ryan L. Davis: University of Alabama at Birmingham
Stephen N. Jurich: School of Business, Dalton State College
Brian S. Roseman: California State University
Ethan D. Watson: University of North Carolina Wilmington

Journal of Financial Services Research, 2018, vol. 54, issue 3, No 4, 345-367

Abstract: Abstract We provide a novel test of information-based theories of price clustering by examining trade, order, and the National Best Bid and Offer (NBBO) quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering. We find evidence of increased price clustering for trades, orders, and NBBO prices during short-sale restrictions. Overall, our findings indicate that short-sale restrictions harm the price discovery process and lead to a reduction in market efficiency.

Keywords: Price clustering; Orders; Short-sale restrictions; Rule 201 (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10693-017-0272-7

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