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Do Short Selling Restrictions Destabilize Stock Markets? Lessons from Taiwan

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Author Info

  • Martin T. Bohl

    (Westfalische Wilhelms-University Munster)

  • Badye Essid

    (Centre for International Governance Innovation)

  • Pierre L. Siklos

    (Wilfrid Laurier University and Hong Kong Institute for Monetary Research)

Abstract

Short 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 Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 112011.

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Length: 28 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:hkm:wpaper:112011

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Keywords: Short-Selling Bans; Taiwanese Stock Market; Asymmetric GARCH Models; Markov Switching Models;

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References

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Cited by:
  1. Blau, Benjamin M. & Smith, Jason M., 2014. "Autocorrelation in daily short-sale volume," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 31-41.

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