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

摘要

In the early 1990s, the NASDAQ introduced a controversial $1 minimum bid price threshold as part of its maintenance criteria (the one-dollar rule). This paper empirically evaluates this rule using an extreme value approach. Utilizing the Generalized Extreme Value distribution model to capture extreme price plummets, I find NASDAQ stocks frequently trading below $1 in the pre-rule period are extremely vulnerable to catastrophic losses. The implementation of the one-dollar rule effectively curbs the extreme downside price movements, which helps to protect investors’ interest, uphold their faith in the exchange, and improve the credibility of the market. Such a pattern is prevalent across all industries and is not affected by market movements. The $1 benchmark serves as an appropriate cutoff point in screening the issues listed on the exchange. The minimum price listing standard on the NASDAQ is justified and has proved to be successful.