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Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis

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  • ALESSANDRO BEBER
  • MARCO PAGANO

Abstract

Most stock exchange regulators around the world reacted to the 2007-2009 crisis byimposing bans or regulatory constraints on short-selling. Short-selling restrictions wereimposed and lifted at different dates in different countries, often applied to different sets ofstocks and featured different degrees of stringency. We exploit this considerable variationin short-sales regimes to identify their effects with panel data techniques, and find that bans(i) were detrimental for liquidity, especially for stocks with small market capitalization,high volatility and no listed options; (ii) slowed down price discovery, especially in bearmarket phases, and (iii) failed to support stock prices, except possibly for U.S. financialstocks.

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File URL: http://hdl.handle.net/10.1111/j.1540-6261.2012.01802.x
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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 68 (2013)
Issue (Month): 1 (02)
Pages: 343-381

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Handle: RePEc:bla:jfinan:v:68:y:2013:i:1:p:343-381

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  1. David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
  2. Pedro A. C. Saffi & Kari Sigurdsson, 2011. "Price Efficiency and Short Selling," Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 821-852.
  3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  4. Michael Halling & Marco Pagano & Otto Randl & Josef Zechner, 2004. "Where is the Market? Evidence from Cross-Listings in the U.S," CSEF Working Papers 129, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2006.
  5. Seraina GRUENEWALD & Alexander F. WAGNER & Rolf H. WEBER, . "Short Selling Regulation after the Financial Crisis – First Principles Revisited," Swiss Finance Institute Research Paper Series 09-28, Swiss Finance Institute.
  6. Halling, Michael & Pagano, Marco & Randl, Otto & Zechner, Josef, 2005. "Where is the Market? Evidence from Cross-Listings," CEPR Discussion Papers 4987, C.E.P.R. Discussion Papers.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Interesting readings
    by Ajay Shah in Ajay Shah's blog on 2009-11-20 20:47:00
  2. Interesting Readings for November 23, 2009
    by Ajay Shah in Citizen Economists on 2009-11-23 15:32:02
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Cited by:
  1. Bai, Min & Qin, Yafeng, 2014. "Short-sales constraints and liquidity change: Cross-sectional evidence from the Hong Kong Market," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 98-122.
  2. Robert Battalio & Hamid Mehran & Paul Schultz, 2012. "Market declines: what is accomplished by banning short-selling?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Aug).
  3. Chunmei Lin & Massimo Massa & and Hong Zhang, 2014. "Mutual Funds and Information Diffusion: The Role of Country-Level Governance," Tinbergen Institute Discussion Papers 14-079/IV/DSF76, Tinbergen Institute.
  4. Warren Bailey & Lin Zheng, 2013. "Banks, Bears, and the Financial Crisis," Journal of Financial Services Research, Springer, vol. 44(1), pages 1-51, August.
  5. Robert Battalio & Hamid Mehran & Paul Schultz, 2011. "Market declines: Is banning short selling the solution?," Staff Reports 518, Federal Reserve Bank of New York.
  6. Amelia Pais & Philip A. Stork, 2013. "Short-Selling, Leverage and Systemic Risk," Tinbergen Institute Discussion Papers 13-186/IV/DSF68, Tinbergen Institute.
  7. René M. Stulz & Dimitrios Vagias & Mathijs A. van Dijk, 2013. "Do Firms Issue more equity when markets are more liquid?," NBER Working Papers 19229, National Bureau of Economic Research, Inc.
  8. Bernal, Oscar & Herinckx, Astrid & Szafarz, Ariane, 2014. "Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe," International Review of Law and Economics, Elsevier, vol. 37(C), pages 244-256.
  9. Robert A. Jarrow & Martin Larsson, 2014. "Informational Efficiency under Short Sale Constraints," Papers 1401.1851, arXiv.org.
  10. Óscar Arce & Sergio Mayordomo, 2012. "Short Sales Constraints and Financial Stability: Evidence from the Spanish 2011 Ban," Faculty Working Papers 25/12, School of Economics and Business Administration, University of Navarra.
  11. Anufriev, Mikhail & Tuinstra, Jan, 2013. "The impact of short-selling constraints on financial market stability in a heterogeneous agents model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1523-1543.
  12. Lensberg, Terje & Schenk-Hoppé, Klaus Reiner & Ladley, Dan, 2012. "Costs and Benefits of Speculation," Discussion Papers 2012/12, Department of Business and Management Science, Norwegian School of Economics.
  13. Sascha Füllbrunn & Tibor Neugebauer, 2012. "Margin Trading Bans in Experimental Asset Markets," Jena Economic Research Papers 2012-058, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  14. Rodrigo De-Losso & Alan De Genaro, Bruno C. Giovannetti, 2012. "Testing the Effects of Short-Selling Restrictions on Asset Prices," Working Papers, Department of Economics 2012_18, University of São Paulo (FEA-USP).
  15. Félix, Luiz & Kräussl, Roman & Stork, Philip, 2013. "The 2011 European short sale ban on financial stocks: A cure or a curse?," CFS Working Paper Series 2013/17, Center for Financial Studies (CFS).
  16. Markus K. Brunnermeier & Martin Oehmke, 2013. "Predatory Short Selling," NBER Working Papers 19514, National Bureau of Economic Research, Inc.

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