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Market impacts of the 2020 short selling bans

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  • Alessandro Spolaore
  • Caroline Le Moign

Abstract

At the height of the COVID‐19 related market stress in March 2020, six European countries implemented market‐wide short selling bans. Based on a difference‐in‐difference approach using regulatory data, our estimation finds that the bans are associated with a deterioration in liquidity and trading volumes, and a decrease in volatility, without evidence of price impact. Remarkably, the negative impact persisted after the bans' lift. Liquidity deterioration appears stronger for liquid shares‐ large‐cap, highly fragmented stocks, and stocks with listed derivatives. Sectoral effects are noticed for the stocks most affected by the market stress. Finally, no displacement effect was observed.

Suggested Citation

  • Alessandro Spolaore & Caroline Le Moign, 2023. "Market impacts of the 2020 short selling bans," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(S1), pages 29-58, December.
    • Handle: RePEc:bla:jfnres:v:46:y:2023:i:s1:p:s29-s58
    DOI: 10.1111/jfir.12355
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