Disclosure-based regulation and municipal security trade prices

Purpose - This paper aims to measure the trade price impact of a recent regulatory disclosure intervention in municipal securities secondary markets, which required broker-dealers to disclose securities trading information on a near-real-time and continuing basis. Design/methodology/approach - The author analyzes trade price outcomes in the preintervention and postintervention regimes using a suite of time series estimations that give heteroskedasticity-robust standard errors (Prais–Winsten and Cochrain–Orcutt), accommodate higher-order lag structure in the error term (autoregressive integrated moving average) and account for volatility clustering in the time series (generalized autoregressive conditional heteroskedasticity). Findings - Results show that regulatory disclosure intervention significantly improved trade price efficiency in municipal securities secondary markets as daily trade price differential and volatility both declined market-wide after the disclosure intervention. Research limitations/implications - The sample consists of trades in State of California general obligation bonds; therefore, empirical findings may not be generalizable to other states, local governments and different types of bonds. Practical implications - The findings highlight voluntary information disclosure as a practical and effective mechanism in disclosure regulation of municipal securities secondary markets. Originality/value - Only a small body of work exists that examines information disclosure regulation in municipal securities secondary markets; therefore, this paper expands knowledge on the topic and should provide renewed impetus for regulatory efforts aimed at improving the efficiency of municipal capital markets.