Anything Wrong with Breaking a Buck? An Empirical Evaluation of NASDAQ’s $1-Minimum-Price Maintenance Criterion

نویسندگان

  • S. Ghon Rhee
  • Feng Wu
چکیده

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 in September 1991, it remained unexplored by academic research. Empirical evidence compiled in this study suggests that the implementation of this one-dollar rule is justified: (i) NASDAQ stocks frequently trading below $1 during the pre-rule period are extremely vulnerable to catastrophic losses; (ii) there is a dramatic decline in extreme downside price movements in stocks trading below $1 after the rule was introduced; and (iii) the $1 benchmark serves as an appropriate cutoff point because a large difference in extreme downside price movements is observed between the stocks trading below and above $1. JEL Classification: G10; G14; and G18

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تاریخ انتشار 2010