The SHO Goes On: A Theoretical and Empirical Evaluation of Uptick-Related Short-Sale Constraints

This paper explores the effects of uptick-related short-sale constraints first on the Glosten-Milgrom Model of Sequential Trade and then empirically on the stocks in the Russell 3000 index used by the SEC in the pilot program created by Reuglation SHO. Finally, the effect of uptick constraints on the relationship between the short and put call ratios is studied through the use of impulse response functions. Both the general and alternative uptick rules are found to decrease informational efficiency in hypothetical financial markets, have no statistically significant positive effects on key financial market metrics, and the change in sign from negative to positive in the response of the put call ratio to a positive shock in the short ratio may be seen as evidence of the use of the options market to avoid short-sale constraints