2008 SEC short selling ban: impacts on the credit default swap market
AbstractOn September 17, 2008, the Securities and Exchange Commission (SEC) issued an emergency order banning the shorting of 797 financial stocks. This paper studies the impact of the short selling ban on the credit derivatives market by investigating credit default swap (CDS) prices during the period that the ban was in effect. The hypothesis is proposed that the short selling ban on 797 financial stocks led market participants to enter CDS contracts to reflect positions that the participants had formerly entered through short sales, thus driving up CDS rates. Analysis compares the CDS prices of firms protected by the ban to the CDS prices of similar firms in the S&P 500 not covered by the ban. Tests are also conducted using metrics from the bond and equities markets to determine if the results from the CDS market are unique to the CDS space. A linear regression technique is used to test the significance of the ban on CDS prices. The study results indicate that the CDS prices of firms covered by the short selling restrictions experienced significant dislocations during the period of the ban.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35366.
Date of creation: 19 May 2010
Date of revision:
SEC short selling ban; credit default swaps; credit derivatives;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G01 - Financial Economics - - General - - - Financial Crises
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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- Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
- Fathi Abid & Nader Naifar, 2006. "The Determinants Of Credit Default Swap Rates: An Explanatory Study," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 23-42.
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