Doctoral Dissertations

Date of Award


Degree Type


Degree Name

Doctor of Philosophy


Business Administration

Major Professor

Phillip Dave

Committee Members

James Wansley, Tracie Woidtke, Donald Bruce


For many years, academics generally viewed uptick rules as short sale constraints that contribute to stock overvaluation and hamper stock price efficiency. Recently adopted Regulation SHO provides us with a natural experiment to study the impact of the suspension of uptick rules on various market quality measures in a controlled environment. In the first essay, I investigate the impact of removing short sale price test rules on stock returns and find that on the NYSE, removing the tick-test rule mitigates stock overvaluation. On the NASDAQ, however, lifting the bid-test rule goes beyond correcting such overvaluation. It shows that prices of high-dispersion stocks tend to be depressed relative to prices of low-dispersion stocks. I also examine the relationship between daily short selling activities and stock returns and find that on average short sellers are more likely to be value-driven “contrarians” who short sell following high stocks returns. In the second essay, I examine the information content of short selling around the release of analyst recommendations. By looking at the magnitude and the speed of price response to analyst downgrade recommendations, I provide intra-day evidence supporting the documented assertion that suspension of the uptick rule helps improve stock price efficiency. For after-hour downgrades, pilot stocks respond quickly, with virtually all of the price response incorporated by the following open, while control stocks take an extra half hour after opening to fully reflect the new information. For downgrades that occur during normal trading hours, downgrade information is partially incorporated into pilot stock prices up to two hours before the recommendation is released, while control stocks take up to an hour and a half after the recommendation release to impound the information into stock price. Finally, short selling activities prior to the release of analyst recommendations indicate that short sellers capitalize on their private information associated with upcoming downgrades in the control sample, but such behavior seems to disappear in the pilot sample. I conjecture that, during the pilot program, short sellers were aware of the SEC’s regulatory scrutiny of pilot stocks and thus avoided trading on their private information in those stocks.

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