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Short Sale Ban as Protection from Market Crash: Evidence from the European Union

Author

Listed:
  • Aleksey Kipriyanov

    (International College of Economics and Finance, HSE University)

Abstract

Europe was divided in the spring of 2020: one part introduced a ban on short sales, while the other did not. Applying difference-in-difference methodology, I use this natural experiment to show that the imposition of the short sale ban positively affected stock returns in the countries in question, but that it was detrimental to market volume and liquidity, with no effect on volatility. Placebo tests confirm the validity of the results. The removal of the short sale ban led to a positive effect on returns in the countries where the ban was lifted, volume decreased, and liquidity and volatility improved.

Suggested Citation

  • Aleksey Kipriyanov, 2023. "Short Sale Ban as Protection from Market Crash: Evidence from the European Union," Russian Journal of Money and Finance, Bank of Russia, vol. 82(2), pages 78-105, June.
    • Handle: RePEc:bkr:journl:v:82:y:2023:i:2:p:78-105
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    References listed on IDEAS

    as
    1. Alessandro Beber & Marco Pagano, 2013. "Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis," Journal of Finance, American Finance Association, vol. 68(1), pages 343-381, February.
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    3. Warren Bailey & Lin Zheng, 2013. "Banks, Bears, and the Financial Crisis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(1), pages 1-51, August.
    4. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June.
    5. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    6. Bessler, Wolfgang & Vendrasco, Marco, 2022. "Short-selling restrictions and financial stability in Europe: Evidence from the Covid-19 crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    7. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2013. "Shackling Short Sellers: The 2008 Shorting Ban," The Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1363-1400.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    equity markets; COVID-19 pandemic; short-selling bans; difference-in-difference;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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