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Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement revisited

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  • Cumming, Douglas
  • Johan, Sofia

Abstract

While it is not clear from Christensen, Hail, and Leuz (2016), the market abuse rules they examine are the same as in Cumming, Johan, and Li (2011), with a difference in focus on the date: Christensen et al. (2016) pick the date the regulations were signed into law, while Cumming et al. (2011) pick date the date the regulations were implemented with organizational agreements and computerized surveillance. Both papers study and find the exact same effect: regulatory change improves market liquidity. We explain the relative merits of the different approaches in this paper, and identify misleading statements in prior work.

Suggested Citation

  • Cumming, Douglas & Johan, Sofia, 2019. "Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement revisited," Finance Research Letters, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318307402
    DOI: 10.1016/j.frl.2018.12.013
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    References listed on IDEAS

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    1. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
    2. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    3. Hans B. Christensen & Luzi Hail & Christian Leuz, 2016. "Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 2885-2924.
    4. Capelle-Blancard, Gunther & Havrylchyk, Olena, 2016. "The impact of the French securities transaction tax on market liquidity and volatility," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 166-178.
    5. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2015. "High frequency trading and end-of-day price dislocation," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 330-349.
    6. Sofia Johan, 2008. "Global Market Surveillance," American Law and Economics Review, American Law and Economics Association, vol. 10(2), pages 454-506.
    7. Cumming, Douglas & Peter Groh, Alexander & Johan, Sofia, 2018. "Same rules, different enforcement: Market abuse in Europe," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 54(C), pages 130-151.
    8. Luzi Hail & Christian Leuz, 2006. "International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 485-531, June.
    9. Barra, Cristian & Destefanis, Sergio & Lubrano Lavadera, Giuseppe, 2016. "Risk and regulation: A difference-in-differences analysis for Italian local banks," Finance Research Letters, Elsevier, vol. 17(C), pages 25-32.
    10. Douglas Cumming & Wenxuan Hou & Eliza Wu, 2018. "Exchange trading rules, governance, and trading location of cross-listed stocks," The European Journal of Finance, Taylor & Francis Journals, vol. 24(16), pages 1453-1484, November.
    11. To, Thomas Y. & Treepongkaruna, Sirimon & Wu, Eliza, 2018. "Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 54(C), pages 114-129.
    12. Park, Jong-Ho & Binh, Ki Beom & Eom, Kyong Shik, 2016. "The effect of listing switches from a growth market to a main board: An alternative perspective," Emerging Markets Review, Elsevier, vol. 29(C), pages 246-273.
    13. Cumming, Douglas & Johan, Sofia & Li, Dan, 2011. "Exchange trading rules and stock market liquidity," Journal of Financial Economics, Elsevier, vol. 99(3), pages 651-671, March.
    14. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2015. "Exchange trading rules, surveillance and suspected insider trading," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 311-330.
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    Cited by:

    1. Buckle, Mike & Chen, Jing & Guo, Qian & Li, Xiaoxi, 2023. "Does smile help detect the UK's price leadership change after MiFID?," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 756-769.
    2. Cowan, Arnold R. & Salotti, Valentina, 2020. "Anti-selective disclosure regulation and analyst forecast accuracy and usefulness," Journal of Corporate Finance, Elsevier, vol. 64(C).
    3. Anolick, Nina & Batten, Jonathan A. & Kinateder, Harald & Wagner, Niklas, 2021. "Time for gift giving: Abnormal share repurchase returns and uncertainty," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Knyazeva, Anzhela, 2019. "Financial innovation in microcap public offerings," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 283-305.
    5. Douglas J. Cumming & Sofia Johan & Anshum Pant, 2019. "Regulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty," JRFM, MDPI, vol. 12(3), pages 1-14, July.
    6. Andriosopoulos, Dimitris & Panetsidou, Styliani, 2021. "A global analysis of Private Investments in Public Equity," Journal of Corporate Finance, Elsevier, vol. 69(C).
    7. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2023. "Algorithmic trading and market quality: International evidence of the impact of errors in colocation dates," Journal of Banking & Finance, Elsevier, vol. 151(C).
    8. Cumming, Douglas J. & Firth, Christopher & Gathergood, John & Stewart, Neil, 2021. "Covid, work-from-home, and securities misconduct," CFS Working Paper Series 666, Center for Financial Studies (CFS).

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    More about this item

    Keywords

    Securities regulation; Market manipulation; Liquidity; Insider trading; Broker-agency conflict; Law and finance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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    1. Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement revisited (Finance Research Letters 2019) in ReplicationWiki

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