Table 5.

Adverse selection costs surrounding the STOCK Act amendment

	Ln($ Price Impact)		Ln(% Price Impact)		Ln(Illiq)
	[1]	[2]	[3]	[4]	[5]	[6]
After	− 0.019***	− 0.055**	− 0.013**	− 0.074***	0.145***	0.060***
	(− 2.738)	(− 2.015)	(− 2.228)	(− 4.089)	(16.414)	(2.817)
Congress	− 0.616***		− 1.512***		− 5.381***
	(− 7.520)		(− 17.649)		(− 30.960)
After × Congress	0.076**	0.076**	0.054*	0.070**	0.037	0.060
	(2.355)	(2.453)	(1.799)	(2.269)	(0.820)	(1.395)
Ln(Price)		0.693***		− 0.256***		− 0.124*
		(9.189)		(− 3.598)		(− 1.747)
Ln(MCAP)		− 0.140**		− 0.103**		− 1.087***
		(− 2.416)		(− 2.175)		(− 13.767)
Ln(Turnover)		0.104***		0.079***		− 0.735***
		(12.665)		(14.757)		(− 125.546)
Constant	− 4.560***	− 6.315***	− 7.725***	− 6.554***	− 6.015***	− 10.418***
	(− 356.982)	(− 24.448)	(− 570.568)	(− 27.208)	(− 177.591)	(− 39.255)
Day FE	No	Yes	No	Yes	No	Yes
Stock FE	No	Yes	No	Yes	No	Yes
R2	0.001	0.006	0.012	0.010	0.034	0.241
N	197,715	197,715	197,757	197,757	216,097	216,097

The table reports the results from estimating the following equation using pooled stock-day observations for the 41 days surrounding the STOCK Act Amendment on April 15, 2013:

$Ln({\mathit{AdverseSelectionCosts}}_{i,t})=\alpha +{\delta }_t+{\gamma }_i+{\beta }_1{\mathit{After}}_t+{\beta }_2{\mathit{Congress}}_i+{\beta }_3{\mathit{After}}_t\times {\mathit{Congress}}_i+{\beta }_{4}Ln\left({\mathit{Price}}_{i,t}\right)+{\beta }_{5}Ln\left({\mathit{MCAP}}_{i,t}\right)+{\beta }_{6}Ln\left(T,u,r,n,o,v,e,r\right)+{\epsilon }_{i,t}$

where the dependent variable is set to one of three measures of adverse selection costs: Ln($ Price Impact), Ln(% Price Impact), or Ln(Illiq). $ Price Impact on the kth trade is defined as: $2D_k\left(M_{k+5},-,M_k\right)$, where $D_k$ is an indicator variable that equals + 1 if the kth trade is a buy and − 1 if the kth trade is a sell (according to Lee and Ready 1991), and $M_{k+5}$ is the NBBO midpoint 5-min after the midpoint $M_k$. % Price Impact is the dollar price impact scaled by the NBBO midpoint. Illiq is Amihud’s (2002) illiquidity measure defined as the absolute value of daily return divided by dollar volume, scaled by 10⁶. After is an indicator variable equal to one if the stock/day observation takes place after April 15, 2013, and zero otherwise. Congress equals unity if the stock is one of the 49 securities held most by Congress (see Table 1) and zero for all other CRSP securities. We include the following control variables: Ln(Price) is the natural log of the average daily closing price. Ln(MCAP) is the natural log of market capitalization, or price times shares outstanding. Ln(Turnover) is the natural log of the daily number of shares traded over shares outstanding. We also include day fixed effects (${\delta }_t$) and stock fixed effects (${\gamma }_i$). T-statistics are reported in parentheses obtained from robust standard errors clustered at the stock level

*, **, *** denote statistical significance at the 0.01, 0.05, and 0.10 levels, respectively