SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
results of Panel B show that the alphas of the pilot sample are statistically similar to the alphas of
the control sample. Therefore, the pilot stocks did not underperform the control stocks. This
suggests that the removal of the price restrictions will not result in either a long horizon
correction of over-pricing nor is it likely to lead to prices being driven below their equilibrium
value.
Table 9 also shows the tendency of the alphas to be significantly positive or
significantly negative. An alpha is deemed to be negative if the estimate is significantly negative
at the 5% level in a two-tailed test. Similarly, an alpha is considered to be positive if the
estimate is significantly positive at the 5% level in a two-tailed test. If the alphas are completely
random, we would expect to find 2.5% of them positive and 2.5% of them negative. Table 9
shows that the frequency of positive alphas is less than 2.5% while the frequency of negative
alphas is slightly higher. 55 The frequency of negative alphas is statistically similar for pilot
stocks and control stocks, providing further evidence against prices being driven below their
equilibrium level. Among Listed Stocks, the control stocks appear to be more likely to have
positive alphas, potentially because price restrictions facilitate over-pricing. This finding
however, is weakened by the observation that fewer than 2.5% of control stocks have
significantly positive alphas.
D. Market Manipulation
The type of analysis conducted in this study cannot directly prove whether market
participants are engaging in manipulative practices, because it is inherently difficult to measure
whether the Pilot has had any impact on the degree to which markets are susceptible to
55 We also estimated the alphas using the value-weighted index. About 2.5% or fewer alphas were significantly
positive and about 2.5% or fewer were significantly negative.
Prepared by the Office of Economic Analysis 47