In recent years, financial regulators have come under increasing judicial scrutiny for conducting inadequate cost/benefit assessments in advance of significant reforms. One facet of this scrutiny is judicial skepticism towards the proper role for regulatory experimentation (and the real option...

We examine how traders react to two prominent stock market regulations. Under a constant fundamental value (FV) process, price limits and trading restrictions significantly reduce the price level and mispricing size when traders are inexperienced. Under a Markov-process FV, there is no evidence...