Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion

S. Ghon RHEE; Feng WU

doi:10.1016/j.finmar.2011.09.002

Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion

S. Ghon RHEE, Feng WU^*

^*Corresponding author for this work

Research output: Journal Publications › Journal Article (refereed) › peer-review

2 Citations (Scopus)

Abstract

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.

Original language	English
Pages (from-to)	258-285
Number of pages	28
Journal	Journal of Financial Markets
Volume	15
Issue number	2
DOIs	https://doi.org/10.1016/j.finmar.2011.09.002
Publication status	Published - May 2012
Externally published	Yes

Bibliographical note

We gratefully acknowledge valuable comments from an anonymous referee, Bruce Lehmann (the Editor), and participants in the 2009 Financial Management Association International annual meeting, the 2009 China International Conference in Finance, the 2010 Financial Management Association International European conference, the 2009 Asian Finance Association annual conference, the 2009 Korea America Finance Association/Korea Capital Market Institute Joint Symposium, the 2011 Malaysian Finance Association annual meeting, and seminars at University of Hawaii at Manoa, University of Macau, Monash University (Australia), Renmin University of China, Central University of Finance and Economics (China), Sungkyunkwan University (Korea), Universiti Sains Malaysia, Universiti Kebangsaan Malaysia, University of Malaya, and Gadjah Mada University (Indonesia).

Funding

Feng Wu thanks University of Macau Start-up Research Grant for financial support.

Keywords

Exchange listing standards
Extreme tail risk
Low-priced stocks
NASDAQ

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10.1016/j.finmar.2011.09.002

Cite this

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title = "Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion",

abstract = "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.",

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AB - 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.

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KW - Low-priced stocks

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Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion

Abstract

Bibliographical note

Funding

Keywords

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