Regulation Fair Disclosure and the Cost of Adverse Selection
Regulation FD, imposed by the Securities and Exchange Commission in October 2000, was designed to create a level playing field by prohibiting disclosure of material private information to selective recipients such as financial analysts. Exactly what informational advantage these recipients gain is unclear. If multiple insiders receive identical information, the information is immediately incorporated in price and the expected profit of each insider is zero. If, on the other hand, Regulation FD has curtailed the flow of information from firms to the investment public, private information becomes long-lived and, hence, more valuable. And, with increased risk in providing immediacy to potentially informed traders, market makers will demand increased compensation by widening the adverse selection components of the bid/ask spread. To test this proposition , we identify the cost components of the bid/ask spread for a sample of NASDAQ stocks in the period just before and just after the implementation of Regulation FD. The evidence indicates after controlling for other factors affecting the market maker” s spread, we show that Regulation FD has led to an increase in adverse selection costs.
Baljit Sidhu Tom Smith Robert E. Whaley
The University of New South Wales, Sydney The Australian National University, Canberra Duke University, Durham
国内会议
南昌
英文
1-30
2007-04-13（万方平台首次上网日期，不代表论文的发表时间）