Do short selling restrictions destabilize stock markets? Lessons from Taiwan
AbstractShort sellers have been routinely blamed for triggering, or exacerbating, stock market declines. The experience of Taiwan provides an interesting case study of the impact of short selling bans on stock returns volatility in a time series framework due to the length of time the short selling ban was in place there. Estimating several variants of an asymmetric GARCH model and a Markov switching GARCH model we find robust evidence that short selling restrictions raise stock returns volatility. The only qualifier is that the impact of short sale bans is a feature of the expansionary phase of business cycles. During recessions this effect dissipates.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 52 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620167
Short-selling bans; Taiwanese stock market; Asymmetric GARCH models; Markov switching models;
Other versions of this item:
- Martin T. Bohl & Badye Essid & Pierre L. Siklos, 2011. "Do Short Selling Restrictions Destabilize Stock Markets? Lessons from Taiwan," Working Papers 112011, Hong Kong Institute for Monetary Research.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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