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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Ryan L. Davis & Stephen N. Jurich & Brian S. Roseman & Ethan D. Watson, 2018. "Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(3), pages 345-367, December.
    • Handle: RePEc:kap:jfsres:v:54:y:2018:i:3:d:10.1007_s10693-017-0272-7
    DOI: 10.1007/s10693-017-0272-7
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    Cited by:

    1. Ahmed Baig & Benjamin M. Blau & Todd G. Griffith, 2021. "Firm Opacity and the Clustering of Stock Prices: the Case of Financial Intermediaries," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(2), pages 187-206, December.
    2. Jurich, Stephen N. & Mishra, Ajay Kumar & Parikh, Bhavik, 2020. "Indecisive algos: Do limit order revisions increase market load?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).

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    More about this item

    Keywords

    Price clustering; Orders; Short-sale restrictions; Rule 201;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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