IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v25y2013icp60-69.html
   My bibliography  Save this article

Multivariate GARCH analysis of Fannie Mae, Freddie Mac, and American International Group: Did the short-selling ban reduce systemic return-risk?

Author

Listed:
  • Ulibarri, Carlos A.

Abstract

This paper uses a multivariate GARCH framework to examine how the 2008 moratorium on short-selling affected the systemic return-risk across three firms at the center of the subprime mortgage crises: Fannie Mae and Freddie Mac, the two largest buyers of US home mortgages; and American International Group, a major insurer of mortgage-backed securities. Wald coefficient tests indicate shocks in prior day returns manifest less systemic return-risk under the short-selling ban, thus coinciding with the regulatory intentions of the United States Securities and Exchange Commission (SEC), to “moderate the sudden and excessive fluctuations in securities prices.” The findings also agree with prior work in observing abnormal-negative returns for heavily shorted firms, and diminished negative skewness and kurtosis under binding short-selling constraints.

Suggested Citation

  • Ulibarri, Carlos A., 2013. "Multivariate GARCH analysis of Fannie Mae, Freddie Mac, and American International Group: Did the short-selling ban reduce systemic return-risk?," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 60-69.
    • Handle: RePEc:eee:ecofin:v:25:y:2013:i:c:p:60-69
    DOI: 10.1016/j.najef.2013.01.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940813000156
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2013.01.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Campbell, John Y. & Hentschel, Ludger, 1992. "No news is good news *1: An asymmetric model of changing volatility in stock returns," Journal of Financial Economics, Elsevier, vol. 31(3), pages 281-318, June.
    2. Harrison Hong & Jeremy C. Stein, 2003. "Differences of Opinion, Short-Sales Constraints, and Market Crashes," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 487-525.
    3. Hemang Desai & K. Ramesh & S. Ramu Thiagarajan & Bala V. Balachandran, 2002. "An Investigation of the Informational Role of Short Interest in the Nasdaq Market," Journal of Finance, American Finance Association, vol. 57(5), pages 2263-2287, October.
    4. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    5. Arturo Bris & William N. Goetzmann & Ning Zhu, 2007. "Efficiency and the Bear: Short Sales and Markets Around the World," Journal of Finance, American Finance Association, vol. 62(3), pages 1029-1079, June.
    6. Ólan T. Henry & Michael McKenzie, 2006. "The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong," The Journal of Business, University of Chicago Press, vol. 79(2), pages 671-692, March.
    7. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2008. "Which Shorts Are Informed?," Journal of Finance, American Finance Association, vol. 63(2), pages 491-527, April.
    8. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June.
    9. Carlos A. Ulibarri & Ionut Florescu & Joel M. Eidsath, 2009. "Regulating noisy short‐selling of troubled firms?," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 1(3), pages 227-245, July.
    10. Ho, Kim Wai, 1996. "Short-sales restrictions and volatility The case of the Stock Exchange of Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 4(4), pages 377-391, December.
    11. Jarrow, Robert A, 1980. "Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices," Journal of Finance, American Finance Association, vol. 35(5), pages 1105-1113, December.
    12. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-1168, September.
    13. Bruno Biais & Christophe Bisière & Jean‐Paul Décamps, 1999. "Short Sales Constraints, Liquidity and Price Discovery: An Empirical Analysis on the Paris Bourse," European Financial Management, European Financial Management Association, vol. 5(3), pages 395-410, November.
    14. J. Michael Harrison & David M. Kreps, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(2), pages 323-336.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Yanxin & Li, Johnny Siu-Hang & Ng, Andrew Cheuk-Yin, 2015. "Option pricing under GARCH models with Hansen's skewed-t distributed innovations," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 108-125.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nezafat, Mahdi & Schroder, Mark & Wang, Qinghai, 2017. "Short-sale constraints, information acquisition, and asset prices," Journal of Economic Theory, Elsevier, vol. 172(C), pages 273-312.
    2. Chen, Yong & Da, Zhi & Huang, Dayong, 2022. "Short selling efficiency," Journal of Financial Economics, Elsevier, vol. 145(2), pages 387-408.
    3. Óscar Arce & Sergio Mayordomo, 2014. "Short-sale constraints and financial stability: Evidence from the Spanish market," Working Papers 1410, Banco de España.
    4. Lecce, Steven & Lepone, Andrew & McKenzie, Michael D. & Segara, Reuben, 2012. "The impact of naked short selling on the securities lending and equity market," Journal of Financial Markets, Elsevier, vol. 15(1), pages 81-107.
    5. Shyu, Yih-Wen & Chan, Kam C. & Liang, Hsin-Yu, 2018. "Spillovers of price efficiency and informed trading from short sales to margin purchases in absence of uptick rule," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 163-183.
    6. Frino, Alex & Lecce, Steven & Lepone, Andrew, 2011. "Short-sales constraints and market quality: Evidence from the 2008 short-sales bans," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 225-236, August.
    7. Khan, Mostafa Saidur Rahim & Bremer, Marc & Kato, Hideaki Kiyoshi, 2018. "Are short-sales constraints binding when there is a centralized lendable securities market? Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 48(C), pages 85-96.
    8. Alves, Carlos & Mendes, Victor & Silva, Paulo Pereira da, 2016. "Analysis of market quality before and during short-selling bans," Research in International Business and Finance, Elsevier, vol. 37(C), pages 252-268.
    9. Cabrera, Juan & Gousgounis, Eleni, 2021. "The dynamics of short sales constraints and market quality: An experimental approach," Journal of Financial Markets, Elsevier, vol. 53(C).
    10. Wang, Yuchen & Wang, Xiaoming, 2023. "Economic policy uncertainty and information intermediary: The case of short seller," Economic Modelling, Elsevier, vol. 120(C).
    11. Paulo Pereira da Silva, 2016. "Did Investors Seeking Short Exposure Move to the CDS Market after the 2011 Short-Sale Bans in European Financial Stocks?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(4), pages 322-353, August.
    12. Jank, Stephan & Roling, Christoph & Smajlbegovic, Esad, 2021. "Flying under the radar: The effects of short-sale disclosure rules on investor behavior and stock prices," Journal of Financial Economics, Elsevier, vol. 139(1), pages 209-233.
    13. Markus K. Brunnermeier & Martin Oehmke, 2014. "Predatory Short Selling," Review of Finance, European Finance Association, vol. 18(6), pages 2153-2195.
    14. Stephen L. Lenkey, 2021. "Informed Trading with a Short-Sale Prohibition," Management Science, INFORMS, vol. 67(3), pages 1803-1824, March.
    15. Tibor Neugebauer & Sascha Füllbrunn, 2013. "Deflating Bubbles in Experimental Asset Markets: Comparative Statics of Margin Regulations," LSF Research Working Paper Series 13-14, Luxembourg School of Finance, University of Luxembourg.
    16. Eom, Yunsung & Hahn, Jaehoon & Sohn, Wook, 2021. "Short sales restrictions and market quality: Evidence from Korea," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    17. Devaney, Michael, 2012. "Financial crisis, REIT short-sell restrictions and event induced volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 219-226.
    18. 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.
    19. Chen, Crystal Xiaobei & Rhee, S. Ghon, 2010. "Short sales and speed of price adjustment: Evidence from the Hong Kong stock market," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 471-483, February.
    20. Brockman, Paul & Luo, Juan & Xu, Limin, 2020. "The impact of short-selling pressure on corporate employee relations," Journal of Corporate Finance, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Multivariate GARCH; Systemic return-risk; Short-selling constraints; Volatility persistence;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:25:y:2013:i:c:p:60-69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.