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When Brokerages Restrict Retail Investors, Does the Game Stop?

• Bostonian 6y ago
  From the abstract: We find that when equity restrictions are imposed, affected stocks fall in price, with cumulative abnormal returns of -18.53% in the first two hours and -95.34% in the first five trading days of equity restrictions. When restrictions are later lifted, share prices do not reverse their earlier declines. Traders also move from equities to the options markets, with large increases in options trading volumes and open interest. Options prices rise sharply in implied volatility terms, and implied volatilities rise by much more than realized volatilities. Options purchasers are thus wildly overpaying to buy puts and calls, which create large transfers from options purchasers to options market-makers and other options sellers.