Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201 |
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| Authors: | Ryan L Davis Stephen N Jurich Brian S Roseman Ethan D Watson |
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| Institution: | 1.Collat School of Business,University of Alabama at Birmingham,Birmingham,USA;2.School of Business, Dalton State College,Dalton,USA;3.Mihaylo College of Business and Economics,California State University,Fullerton,USA;4.Cameron School of Business,University of North Carolina Wilmington,Wilmington,USA |
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| 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. |
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