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Analysis of market quality before and during short-selling bans

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  • Alves, Carlos
  • Mendes, Victor
  • Silva, Paulo Pereira da

Abstract

We measure the impact of the August 2011 bans on covered short-selling adopted by several European countries. Our results provide evidence that the impact on prices was short-lived: the positive price impact disappears after ten days. The short-selling restrictions did not contribute to reduce the volatility of the financial stocks subjected to the bans; on the contrary, our findings indicate that volatility actually increased by a greater extent for these stocks than for other financial stocks with similar characteristics. The bans also had a negative impact on liquidity. Moreover, stocks subjected to the bans exhibit a longer delay in the assimilation of negative market news during the banning span.

Suggested Citation

  • Alves, Carlos & Mendes, Victor & Silva, Paulo Pereira da, 2016. "Analysis of market quality before and during short-selling bans," Research in International Business and Finance, Elsevier, vol. 37(C), pages 252-268.
    • Handle: RePEc:eee:riibaf:v:37:y:2016:i:c:p:252-268
    DOI: 10.1016/j.ribaf.2015.11.009
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    Cited by:

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    2. Daniel Sales Casula & Rodrigo De-Losso, 2019. "Short Selling, the supply side: are lenders price makers?," Working Papers, Department of Economics 2019_53, University of São Paulo (FEA-USP).
    3. MiloÈ™ Marius Cristian & MiloÈ™ Laura Raisa, 2018. "Short-Selling Regulation and the Development of the Stock Markets," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 470-475, July.
    4. Nathalie Oriol & Iryna Veryzhenko, 2019. "Market structure or traders' behavior? A multi agent model to assess flash crash phenomena and their regulation," Quantitative Finance, Taylor & Francis Journals, vol. 19(7), pages 1075-1092, July.
    5. Paulo Pereira da Silva, 2016. "Did Investors Seeking Short Exposure Move to the CDS Market after the 2011 Short-Sale Bans in European Financial Stocks?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(4), pages 322-353, August.
    6. Ge-zhi Wu & Da-ming You, 2021. "Margin trading, short selling and corporate green innovation," Papers 2107.11255, arXiv.org, revised Aug 2021.
    7. Kwaku Boafo Baidoo, 2019. "The Effects of Short Selling on Financial Markets Volatilities," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 5(2), pages 218-228.

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    More about this item

    Keywords

    Short-selling; Ban; Market quality; Market efficiency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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