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 PublicationsJournal Article (refereed)peer-review

1 Scopus Citations

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 languageEnglish
Pages (from-to)258-285
Number of pages28
JournalJournal of Financial Markets
Volume15
Issue number2
DOIs
Publication statusPublished - May 2012
Externally publishedYes

Keywords

  • Exchange listing standards
  • Extreme tail risk
  • Low-priced stocks
  • NASDAQ

Fingerprint Dive into the research topics of 'Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion'. Together they form a unique fingerprint.

Cite this