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Get Shorty? - Market Impact of the 2008-09 U.K. Short Selling Ban

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  • Hansson, Fredrik

    ()
    (Centre for Finance and)

  • Rüdow Fors, Erik

    ()
    (Centre for Finance and)

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    Abstract

    In September 2008, during one of the most intense periods of the financial crisis, the Financial Services Authority (FSA) decided to ban short-selling in financial stocks during four months in the U.K. market. The aim of the ban was to guard against instability and calm the market. This paper examines the effect of the ban on the banned stocks in terms of returns and market quality measured by abnormal returns, volatility, bid-ask spreads and volumes using intraday data. Event study methods and panel regressions are used to isolate the effects of the ban as specifically as possible. We do not find evidence of any effects of the ban on abnormal returns and volatilities, largely due to the extreme levels of noise during the financial crisis. However, we do find strong evidence that the bid-ask spreads in the affected stocks widened during the ban and that the trading activity in the banned stocks decreased.

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    File URL: http://hdl.handle.net/2077/20407
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    Bibliographic Info

    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 365.

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    Length: 40 pages
    Date of creation: 11 Jun 2009
    Date of revision:
    Handle: RePEc:hhs:gunwpe:0365

    Contact details of provider:
    Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
    Web page: http://www.handels.gu.se/econ/
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    Keywords: short selling; market quality; FSA; regulation;

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