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Short-Selling Bans around the World: Evidence from the 2007-09 Crisis

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  • Beber, Alessandro
  • Pagano, Marco

Abstract

Most stock exchange regulators around the world reacted to the 2007-2009 crisis by imposing bans or regulatory constraints on short-selling. Short-selling restrictions were imposed and lifted at different dates in different countries, often applied to different sets of stocks and featured different degrees of stringency. We exploit this considerable variation in short-sales regimes to identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization, high volatility and no listed options; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices, except possibly for U.S. financial stocks.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7557.

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Date of creation: Nov 2009
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Handle: RePEc:cpr:ceprdp:7557

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Keywords: ban; crisis; liquidity; price discovery; short selling;

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  1. Halling, Michael & Pagano, Marco & Randl, Otto & Zechner, Josef, 2005. "Where is the Market? Evidence from Cross-Listings," CEPR Discussion Papers 4987, C.E.P.R. Discussion Papers.
  2. Saffi, Pedro & Sigurdson, Kari, 2008. "Price efficiency and short selling," IESE Research Papers D/748, IESE Business School.
  3. Seraina GRUENEWALD & Alexander F. WAGNER & Rolf H. WEBER, . "Short Selling Regulation after the Financial Crisis – First Principles Revisited," Swiss Finance Institute Research Paper Series 09-28, Swiss Finance Institute.
  4. Michael Halling & Marco Pagano & Otto Randl & Josef Zechner, 2004. "Where is the Market? Evidence from Cross-Listings in the U.S," CSEF Working Papers 129, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2006.
  5. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  6. David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Interesting readings
    by Ajay Shah in Ajay Shah's blog on 2009-11-20 20:47:00
  2. Interesting Readings for November 23, 2009
    by Ajay Shah in Citizen Economists on 2009-11-23 15:32:02
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Cited by:
  1. Oscar Bernal Diaz & Astrid Herinckx & Ariane Szafarz, 2013. "Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe," Working Papers CEB 13-001, ULB -- Universite Libre de Bruxelles.
  2. Markus K. Brunnermeier & Martin Oehmke, 2013. "Predatory Short Selling," NBER Working Papers 19514, National Bureau of Economic Research, Inc.
  3. Anufriev, M. & Tuinstra, J., 2013. "The impact of short-selling constraints on financial market stability in a heterogeneous agents model," CeNDEF Working Papers 13-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  4. Sascha Füllbrunn & Tibor Neugebauer, 2012. "Margin Trading Bans in Experimental Asset Markets," Jena Economic Research Papers 2012-058, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. Robert A. Jarrow & Martin Larsson, 2014. "Informational Efficiency under Short Sale Constraints," Papers 1401.1851, arXiv.org.
  6. Robert Battalio & Hamid Mehran & Paul Schultz, 2012. "Market declines: what is accomplished by banning short-selling?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Aug).
  7. Rodrigo De-Losso & Alan De Genaro, Bruno C. Giovannetti, 2012. "Testing the Effects of Short-Selling Restrictions on Asset Prices," Working Papers, Department of Economics 2012_18, University of São Paulo (FEA-USP).
  8. René M. Stulz & Dimitrios Vagias & Mathijs A. van Dijk, 2013. "Do Firms Issue more equity when markets are more liquid?," NBER Working Papers 19229, National Bureau of Economic Research, Inc.
  9. Bai, Min & Qin, Yafeng, 2014. "Short-sales constraints and liquidity change: Cross-sectional evidence from the Hong Kong Market," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 98-122.
  10. Robert Battalio & Hamid Mehran & Paul Schultz, 2011. "Market declines: Is banning short selling the solution?," Staff Reports 518, Federal Reserve Bank of New York.
  11. 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.
  12. Félix, Luiz & Kräussl, Roman & Stork, Philip, 2013. "The 2011 European short sale ban on financial stocks: A cure or a curse?," CFS Working Paper Series 2013/17, Center for Financial Studies (CFS).
  13. Chunmei Lin & Massimo Massa & and Hong Zhang, 2014. "Mutual Funds and Information Diffusion: The Role of Country-Level Governance," Tinbergen Institute Discussion Papers 14-079/IV/DSF76, Tinbergen Institute.
  14. Amelia Pais & Philip A. Stork, 2013. "Short-Selling, Leverage and Systemic Risk," Tinbergen Institute Discussion Papers 13-186/IV/DSF68, Tinbergen Institute.
  15. Warren Bailey & Lin Zheng, 2013. "Banks, Bears, and the Financial Crisis," Journal of Financial Services Research, Springer, vol. 44(1), pages 1-51, August.
  16. Lensberg, Terje & Schenk-Hoppé, Klaus Reiner & Ladley, Dan, 2012. "Costs and Benefits of Speculation," Discussion Papers 2012/12, Department of Business and Management Science, Norwegian School of Economics.

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