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Frictions, The Flow Of Information, And The Distribution Of Liquidity, Spencer A. Montgomery
Frictions, The Flow Of Information, And The Distribution Of Liquidity, Spencer A. Montgomery
All Graduate Plan B and other Reports, Spring 1920 to Spring 2023
This paper examines the effects of short sale deregulation on market quality by examining the implementation of regulation SHO, which removed the uptick rule for a subset of pilot securities. This created an exogenous event, allowing a direct examination of the effect of short sale constraints on the markets. This study builds on Roll and Subrahmanyam (2010) in examining the skewness of bid-ask spreads as they represent information asymmetry and market maker competition. We find that the price tests conducted in regulation SHO evenly effected both pilot and non-pilot securities, including a widening of bid-ask spreads and a decrease in …