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Short-selling bans and contagion risk

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Abstract

Starting in September 2008 stock market regulators across the world introduced, at different times and for different durations, bans on short-selling financial institution’s shares. The argument for the bans is that short selling increases the volatility and contagion risk of financial institutions. This paper uses Extreme Value Theory to calculate univariate and contagion risks across financial institutions, and the effect of short selling on those risks in banks in Belgium, France, Italy and Spain. We find that changes in these downside risk metrics are positively related to changes in short-selling positions.

Suggested Citation

  • Pais, Amelia & Stork, Philip A., 2012. "Short-selling bans and contagion risk," Journal of Financial Transformation, Capco Institute, vol. 35, pages 109-122.
    • Handle: RePEc:ris:jofitr:1532
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    Cited by:

    1. Xuewen Liu, 2015. "Short-Selling Attacks and Creditor Runs," Management Science, INFORMS, vol. 61(4), pages 814-830, April.
    2. repec:ers:journl:v:v:y:2017:i:1:p:18-48 is not listed on IDEAS
    3. Amelia Pais & Philip A. Stork, 2013. "Short-Selling, Leverage and Systemic Risk," Tinbergen Institute Discussion Papers 13-186/IV/DSF68, Tinbergen Institute.
    4. Simon Grima & Stephen Sammut, 2017. "A Study on the Impact of the Short Selling Ban on FIBS," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 18-48.

    More about this item

    Keywords

    short selling; short-selling ban; stock market; Extreme Value Theory; univariate risk; contagion risk; risk metrics;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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