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SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

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Reg SHO Pilot Report 2/12/2007<br />

Panel B shows the results for thirty minute returns. Measured relative to control stocks,<br />

the pilot stocks experience no statistically significant increase in return correlation for any of the<br />

thirty minute intervals examined.<br />

In summary, returns in Listed Stocks are negatively serially correlated following both<br />

positive and negative returns over short horizons and removing price restrictions increases this<br />

negative correlation. The symmetry of these results is consistent with the volatility results<br />

above. We find no statistically significant impact for Nasdaq NM Stocks.<br />

E. Small and Low-Volume Stocks<br />

The analysis presented heretofore analyzes Listed Stocks and Nasdaq NM Stocks<br />

separately, but beyond this does not make any effort to ascertain whether the pilot may have a<br />

disproportionate or qualitatively different effect on smaller or less liquid stocks. In order to<br />

address these questions, we partition the sample into deciles according to market capitalization<br />

and turnover. As described above in section V-E, we partition the sample into deciles before<br />

separating them across markets, to ensure that Listed Stocks and Nasdaq NM Stocks in the same<br />

decile are comparable. The sample sizes resulting from these decile partitions are reported in<br />

Table 13. As the table indicates, the Listed Stocks are more concentrated in the higher deciles of<br />

market capitalization, while the opposite is true for Nasdaq NM Stocks. However, both Listed<br />

and Nasdaq NM Stocks have representation across all deciles of the two measures.<br />

Tables 14 through 26 present our results analyzing how many of the results presented<br />

earlier vary as a function of size and liquidity. As explained in section V-E, above, these tables<br />

are based on a regression analysis where each model includes a pilot indicator and a pilot<br />

indicator interacted with indicator variables for deciles one through nine. In this model, the<br />

Prepared by the Office of Economic Analysis 51

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