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The COVID-19 pandemic, short-sale ban, and market efficiency: empirical evidence from the European equity markets

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  • Seungho Lee

    (University of Aberdeen)

Abstract

This study looks at the inefficiency of stock indices of France, Italy, and Spain around their financial regulatory authorities’ short-sale ban during the COVID-19 pandemic crisis. The empirical analysis of this study provides evidence of price predictability of the basis of futures contract prior to the short-sale restriction. Moreover, the results show a significant underpricing in futures contracts of FTSE MIB and IBEX35 indices while the two months of short-sale banned period. These findings suggest that prohibiting short selling during the market downturn might undermine the stock markets’ efficiency and generate arbitrage opportunities for speculative investors.

Suggested Citation

  • Seungho Lee, 2022. "The COVID-19 pandemic, short-sale ban, and market efficiency: empirical evidence from the European equity markets," Journal of Asset Management, Palgrave Macmillan, vol. 23(2), pages 156-171, March.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:2:d:10.1057_s41260-021-00254-w
    DOI: 10.1057/s41260-021-00254-w
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    Cited by:

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    2. Luu, Ellie & Xu, Fangming & Zheng, Liyi, 2023. "Short-selling activities in the time of COVID-19," The British Accounting Review, Elsevier, vol. 55(4).

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    More about this item

    Keywords

    Speculation; Efficient markets; Futures arbitrage; COVID-19;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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