Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion
This paper empirically evaluates the effects of NASDAQ's $1 minimum bid price threshold (known as the one-dollar rule) as part of its listing maintenance criteria. Even though this controversial rule was introduced as early as September 1991, its economic impact has been largely unexplored by academics. This study suggests that implementation of the one-dollar rule is justified for the following reasons: (1) NASDAQ stocks frequently trading below $1 during the pre-rule period are extremely vulnerable to catastrophic losses; (2) a dramatic decline in extreme loss probability is observed among low-priced (relative to $1) stocks after the rule was introduced; and (3) the $1 benchmark serves as an appropriate cutoff point in screening stocks listed on the exchange.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Seguin, P. J. & Smoller, M. M., 1997. "Share price and mortality: An empirical evaluation of newly listed Nasdaq stocks," Journal of Financial Economics, Elsevier, vol. 45(3), pages 333-363, September.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
- Tano Santos & José A. Scheinkman, 2000.
"Competition Among Exchanges,"
CRSP working papers
514, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Lamba, Asjeet S & Khan, Walayet A, 1999. "Exchange Listings and Delistings: The Role of Insider Information and Insider Trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 131-46, Summer.
- Huddart, Steven & Hughes, John S. & Brunnermeier, Markus, 1999.
"Disclosure requirements and stock exchange listing choice in an international context,"
Journal of Accounting and Economics,
Elsevier, vol. 26(1-3), pages 237-269, January.
- John S. Hughes & Steven Huddart & Markus K Brunnermeier, 1998. "Disclosure Requirements and Stock Exchange Listing Choice in an International Context," FMG Discussion Papers dp282, Financial Markets Group.
- Han, Ki C., 1995. "The Effects of Reverse Splits on the Liquidity of the Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 159-169, March.
- Reena Aggarwal & James J. Angel, .
"The Rise and Fall of the AMEX Emerging Company Marketplace,"
_002, Georgetown School of Business.
- Aggarwal, Reena & Angel, James J., 1999. "The rise and fall of the Amex Emerging Company Marketplace," Journal of Financial Economics, Elsevier, vol. 52(2), pages 257-289, May.
- P. Chandy & Salil Sarkar & Niranjan Tripathy, 2004. "Empirical evidence on the effects of delisting from the National Market System," Journal of Economics and Finance, Springer, vol. 28(1), pages 46-55, March.
- Fama, Eugene F. & French, Kenneth R., 2004. "New lists: Fundamentals and survival rates," Journal of Financial Economics, Elsevier, vol. 73(2), pages 229-269, August.
- Daniel J. Bradley & John W. Cooney Jr. & Steven D. Dolvin & Bradford D. Jordan, 2006.
"Penny Stock IPOs,"
Financial Management Association International, vol. 35(1), pages 5-29, 03.
- David R. Peterson & Pamela P. Peterson, 1992. "A Further Understanding Of Stock Distributions: The Case Of Reverse Stock Splits," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(3), pages 189-205, 09.
- Desai, Hemang & Jain, Prem C, 1997. "Long-Run Common Stock Returns following Stock Splits and Reverse Splits," The Journal of Business, University of Chicago Press, vol. 70(3), pages 409-33, July.
- Chemmanur, Thomas J. & Fulghieri, Paolo, 2006. "Competition and cooperation among exchanges: A theory of cross-listing and endogenous listing standards," Journal of Financial Economics, Elsevier, vol. 82(2), pages 455-489, November.
- Macey, Jonathan R. & O'Hara, Maureen, 2002. "The Economics of Stock Exchange Listing Fees and Listing Requirements," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 297-319, July.
- Park, Jinwoo, 1995. "A Market Microstructure Explanation for Predictable Variations in Stock Returns following Large Price Changes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(02), pages 241-256, June.
- ROCKINGER, Michael & JONDEAU, Eric, 2001.
"Testing for differences in the tails of stock-market returns,"
Les Cahiers de Recherche
739, HEC Paris.
- Jondeau, Eric & Rockinger, Michael, 2003. "Testing for differences in the tails of stock-market returns," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 559-581, December.
- Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July.
- Jonathan Macey & Maureen O'Hara & David Pompilio, 2008. "Down and Out in the Stock Market: The Law and Economics of the Delisting Process," Journal of Law and Economics, University of Chicago Press, vol. 51(4), pages 683-713, November.
- Terrence Martell & Gwendolyn Webb, 2008. "The performance of stocks that are reverse split," Review of Quantitative Finance and Accounting, Springer, vol. 30(3), pages 253-279, April.
- Harris, Jeffrey H. & Panchapagesan, Venkatesh & Werner, Ingrid, 2008. "Off but Not Gone: A Study of Nasdaq Delistings," Working Paper Series 2008-6, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Fernando, Chitru S. & Krishnamurthy, Srinivasan & Spindt, Paul A., 2004. "Are share price levels informative? Evidence from the ownership, pricing, turnover and performance of IPO firms," Journal of Financial Markets, Elsevier, vol. 7(4), pages 377-403, October.
- Chemmanur, Thomas J & Fulghieri, Paolo, 1999. "A Theory of the Going-Public Decision," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 249-79.
- Sanger, Gary C. & Peterson, James D., 1990. "An Empirical Analysis of Common Stock Delistings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 261-272, June.
When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:15:y:2012:i:2:p:258-285. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.