SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Reg SHO Pilot Report 2/12/2007
Study Alexander and Peterson (2006) Diether, Lee, and Werner
(2006)
Volatility No impact. The authors examine No increase in the majority of
six volatility measures: 5 minute the 26 different volatility
return volatility, semi-variance, measures for Pilot Stocks.
daily relative price range, Fama- NYSE: higher short term
French three-factor model volatility (15/5 variance ratio),
idiosyncratic risk, CAPM
daily return volatility, trade to
idiosyncratic risk, and implied trade return volatility, offer to
volatility.
offer quote volatility, fiveminute
bid and offer volatility,
daily up-side and down-side
semi-variance.
The authors examine semivariance,
trade returns, bid
quote returns, and ask quote
returns for various time
lengths: trade to trade, quote
to quote, five-minute, fifteenminute,
and daily. They also
examine the 15/5 minute
variance ratio.
Efficiency No impact except for the following
measures for NYSE stocks:
higher autocorrelation of fiveminute
returns, greater likelihood
of a lower price for the second
trade after a short sale, and
greater likelihood of a higher
trade price for the first trade after
a short sale. The authors
examine the autocorrelation of
five- and thirty-minute returns,
upside minus downside rsquared,
and price runs.
Wu (2006) SEC
Variance ratios did not
change with pilot.
Daily price range and intraday
price standard deviation do
not change.
Hasbrouck pricing errors
show no significant change
with pilot.
Intraday return
autocorrelations (30 and 60
minute) did not change with
pilot.
Prepared by the Office of Economic Analysis 88
Some evidence of an increase
in intraday volatility. This
appears to be driven by
smaller stocks as larger stocks
saw a decline in intraday
volatility during the pilot.
While average daily volatility
does not change, smaller
stocks experienced lower
volatility during the pilot as
larger stocks experienced an
increase.
Higher five-minute return
reversals.
Higher five-minute semiautoregression.
No impact on thirty-minute
return reversals, thirty-minute
semi-autocorrelation, or on
skewness in five-minute, thirtyminute,
and daily returns.