IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v52y2012i2p198-206.html
   My bibliography  Save this article

Do short selling restrictions destabilize stock markets? Lessons from Taiwan

Author

Listed:
  • Bohl, Martin T.
  • Essid, Badye
  • Siklos, Pierre L.

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.

Suggested Citation

  • Bohl, Martin T. & Essid, Badye & Siklos, Pierre L., 2012. "Do short selling restrictions destabilize stock markets? Lessons from Taiwan," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 198-206.
  • Handle: RePEc:eee:quaeco:v:52:y:2012:i:2:p:198-206
    DOI: 10.1016/j.qref.2012.02.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976912000117
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-1168, September.
    2. Luc Bauwens & Arie Preminger & Jeroen V. K. Rombouts, 2010. "Theory and inference for a Markov switching GARCH model," Econometrics Journal, Royal Economic Society, vol. 13(2), pages 218-244, July.
    3. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    4. George Bittlingmayer, 1998. "Output, Stock Volatility, and Political Uncertainty in a Natural Experiment: Germany, 1880-1940," Journal of Finance, American Finance Association, vol. 53(6), pages 2243-2257, December.
    5. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
    6. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, vol. 102(411), pages 415-425, March.
    7. Eric C. Chang & Joseph W. Cheng & Yinghui Yu, 2007. "Short-Sales Constraints and Price Discovery: Evidence from the Hong Kong Market," Journal of Finance, American Finance Association, vol. 62(5), pages 2097-2121, October.
    8. Arturo Bris & William N. Goetzmann & Ning Zhu, 2007. "Efficiency and the Bear: Short Sales and Markets Around the World," Journal of Finance, American Finance Association, vol. 62(3), pages 1029-1079, June.
    9. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
    10. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
    11. Pedro A. C. Saffi & Kari Sigurdsson, 2011. "Price Efficiency and Short Selling," Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 821-852.
    12. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    13. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-593, Sept.-Oct.
    14. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2011. "Stock Market Liquidity and the Business Cycle," Journal of Finance, American Finance Association, vol. 66(1), pages 139-176, February.
    15. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2008. "Which Shorts Are Informed?," Journal of Finance, American Finance Association, vol. 63(2), pages 491-527, April.
    16. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
    17. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    18. Hu, Ou & Huang, Zhaodan & Liao, Bih-shuang, 2009. "Short sale and stock returns: Evidence from the Taiwan Stock Exchange," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 1146-1158, August.
    19. Serwa, Dobromil & Bohl, Martin T., 2005. "Financial contagion vulnerability and resistance: A comparison of European stock markets," Economic Systems, Elsevier, vol. 29(3), pages 344-362, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nathalie Oriol & Iryna Veryzhenko, 2015. "Market structure or traders’ behavior? An assessment of flash crash phenomena and their regulation based on a multi-agent simulation," Working Papers halshs-01254435, HAL.
    2. Bohl, Martin T. & Reher, Gerrit & Wilfling, Bernd, 2016. "Short selling constraints and stock returns volatility: Empirical evidence from the German stock market," Economic Modelling, Elsevier, vol. 58(C), pages 159-166.
    3. Martin T. Bohl, Badye Essid, Pierre Siklos, 2018. "Short-Selling Bans and the Global Financial Crisis: Are they Inter-Connected?," LCERPA Working Papers 0112, Laurier Centre for Economic Research and Policy Analysis, revised 30 Jan 2018.
    4. 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.

    More about this item

    Keywords

    Short-selling bans; Taiwanese stock market; Asymmetric GARCH models; Markov switching models;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:52:y:2012:i:2:p:198-206. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.