SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
Table 11: Extreme Price Reversals
This table summarizes how the frequency of large negative and positive short-horizon price reversals differs across
pilot and control stocks. The numbers in the table represent the number of reversals per 100,000 stock/intervals. A
negative (positive) reversal is defined as a negative (positive) return immediately followed by a positive (negative)
return. The “size” of the reversal is defined as the minimum absolute value of the two adjacent returns, normalized
by the pre-pilot standard deviation of the stock’s holding-period return, where the second return is computed as a
percentage of the lagged price, and the holding period is five minutes or thirty minutes. The frequency of reversals is
computed based on a six-month period following the pilot start date (May 2, 2005). The pre-pilot standard deviation
used to normalize the returns is computed over a four-month period prior to the start date. Nonparametric statistical
tests based on a bootstrapping procedure determine whether the number of reversals observed in the pilot sample
would be statistically rare in the control sample. **, * indicates statistical significance at the 1% and 5% level in a
two-tailed test.
Panel A: Five-Minute Return Reversals
Listed Stocks Nasdaq Stocks
Negative Reversals Positive Reversals Negative Reversals Positive Reversals
Reversal
Size Pilot Control Pilot Control Pilot Control Pilot Control
> 2 338.4** 281.3 339.1** 281.1 273.4** 257.4 284.1** 267.8
> 3 76.7** 65.1 75.4** 63.5 71.9** 62.8 72.7** 67.0
> 4 25.0** 20.4 24.4** 19.3 25.1** 22.4 27.6** 24.6
> 5 10.0** 8.8 11.3** 8.4 10.5 9.1 13.2** 11.2
> 6 4.9 4.6 5.8** 4.8 5.3 4.2 6.9* 5.9
> 7 2.8 2.8 3.4 3.1 3.0 2.2 3.6 3.6
> 8 1.7 1.8 2.0 2.2 1.9 1.2 2.2 2.2
> 9 1.1 1.3 1.2* 1.7 1.2 0.6 1.6 1.4
Panel B: Thirty-Minute Return Reversals
Listed Stocks Nasdaq Stocks
Negative Reversals Positive Reversals Negative Reversals Positive Reversals
Reversal
Size Pilot Control Pilot Control Pilot Control Pilot Control
> 2 251.4 240.8 240.5 231.4 215.3 218.7 224.3 221.5
> 3 53.2* 47.1 44.3 45.9 38.3 41.0 41.6 45.5
> 4 9.2 11.0 12.6 12.0 12.1 10.3 12.1 13.4
> 5 3.3 4.3 4.2 5.4 4.8 4.1 5.3 4.6
> 6 1.0 1.6 1.3 2.3 1.5 2.2 3.2 2.2
> 7 0.4 0.8 0.6 1.3 0.3 0.9 1.3 1.3
> 8 0.1 0.4 0.1 0.7 0.2 0.5 0.7 0.8
> 9 0.0 0.2 0.1 0.4 0.0 0.3 0.5 0.7
Prepared by the Office of Economic Analysis 71