Short Selling – On Ethics, Politics, and Culture

Lawyers and economists do not always speak the same language. Where economists present crisp and clear numbers, lawyers get lost in lengthy discussions about fairness and justice. Or so it seems. Arguably, the regulation of short selling illustrates a worrying clash of cultures. Economists understand short selling as a value-free market mechanism while (not only) lawyers suspect a profit, unfairly gained at the expense of others: “Short sellers not only profit from the misery of others, they also cause it”. In what follows, we address implications of this culture clash in the realm of ethics and politics. We conclude with a hypothesis, submitting that there might be traces of another clash to be observed when comparing regulatory cultures across countries. A preliminary look at data seems to suggest that short sale bans are less common in countries with a strong capital-market tradition and more common for countries which are newer to this game. If this holds true, important lessons are to be learned for the European Commission’s plan to set up a capital market union.