SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
Appendix A: Concurrent Regulation SHO Pilot Studies
We have identified four concurrent studies that also examine the effect of removing the
tick test and/or the bid test during the Regulation SHO Pilot. Much of the analysis is similar to
the analysis reported in this report, but the construction of the samples and the focus of the test
design differs in important ways. Each approach has its merits. See the attached Table A.1 for a
simplified comparison of the approaches.
One main difference between the construction of the samples for this report and the
sample construction in the concurrent papers is the incorporation of stocks that might be outliers.
This report includes these stocks because they might be the ones most affected by the Pilot. The
other studies exclude these stocks in order to improve matching between the pilot and control
stocks or to remove the influence of confounding events.
Three academic studies (Alexander and Peterson (2006), Deither, Lee, and Werner
(2006), and Wu (2006)) plus the OEA study incorporated a Pre-Pilot period into the study. The
design of the Bai (2006) study does not require comparison to a Pre-Pilot period. All studies
compared Pilot stocks to Control stocks, but two conducted one-on-one matches (Alexander and
Peterson (2006) and Wu (2006)).
Despite the different decisions, many of the results of this report are supported by the
results of the concurrent studies. A summary of the results of the three studies most comparable
to this report can be found in Table A.2. Bai (2006) is not included because the focus differs
from this report. The general results, however, are in line with the results of the academic
studies and this report. Specifically, Bai (2006) finds no effect of the pilot on stock price
reactions to negative earnings shocks.
Prepared
by the Office of Economic Analysis 85