IDEAS home Printed from https://ideas.repec.org/a/eme/mfipps/v36y2010i8p722-737.html
   My bibliography  Save this article

Restricted private information provision during short sale bans

Author

Listed:
  • Yiuman Tse
  • Michael Williams

Abstract

Purpose - The purpose of this paper is to examine the 2008 SEC short selling ban on financial firms and whether this ban negatively impacted private information provision in these short-restricted equities. Design/methodology/approach - This paper employs the French and Roll Variance Ratio (VR) as a proxy for private information provision in both an unconditional and conditional analysis. The unconditional analysis examines the VR across trading characteristics, firm characteristics, and time regimes. The conditional analysis models the VR in an event study framework where exogenous determinants of private information provision are held constant. Findings - Empirical results indicate that private information provision increased due to the 2007 US financial crisis while information provision decreased due to the 2008 short selling ban. This study concludes that the 2007 financial crisis enticed informed short sellers into the market which then increased information provision. Further, the 2008 short selling ban restricted these informed short sellers from the market thus leading to a decrease in information provision in the short-restricted firms. Interestingly, the information restricting effects of the 2008 ban were not severe enough to erode the gains in information provision originally induced by the financial crisis. Originality/value - This paper specifically contributes by demonstrating that the 2008 SEC short selling ban negatively impacted private information provision. This paper contributes generally by showing that short sale bans' information effects are not completely restrictive. Rather, short sale bans' information effects are a function of firm characteristics and contemporaneous market conditions.

Suggested Citation

  • Yiuman Tse & Michael Williams, 2010. "Restricted private information provision during short sale bans," Managerial Finance, Emerald Group Publishing, vol. 36(8), pages 722-737, July.
  • Handle: RePEc:eme:mfipps:v:36:y:2010:i:8:p:722-737
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/03074351011056545?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

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

    References listed on IDEAS

    as
    1. Joseph J. Seneca, 1967. "Short Interest: Bearish Or Bullish?," Journal of Finance, American Finance Association, vol. 22(1), pages 67-70, March.
    2. Stephen E. Christophe & Michael G. Ferri & James J. Angel, 2004. "Short-Selling Prior to Earnings Announcements," Journal of Finance, American Finance Association, vol. 59(4), pages 1845-1876, August.
    3. 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.
    4. Hemang Desai & K. Ramesh & S. Ramu Thiagarajan & Bala V. Balachandran, 2002. "An Investigation of the Informational Role of Short Interest in the Nasdaq Market," Journal of Finance, American Finance Association, vol. 57(5), pages 2263-2287, October.
    5. Senchack, A. J. & Starks, Laura T., 1993. "Short-Sale Restrictions and Market Reaction to Short-Interest Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 177-194, June.
    6. Tom Arnold & Alexander W. Butler & Timothy Falcon Crack & Yan Zhang, 2005. "The Information Content of Short Interest: A Natural Experiment," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1307-1336, July.
    7. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2008. "Liquidity and market efficiency," Journal of Financial Economics, Elsevier, vol. 87(2), pages 249-268, February.
    8. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
    9. Jones, Charles M. & Lamont, Owen A., 2002. "Short-sale constraints and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 207-239.
    10. Jarrod Johnston & Jeff Madura & Joel Harper, 2005. "Interaction Between Short Selling and Potential Insider Selling in the IPO Aftermarket," Journal of Financial Services Research, Springer;Western Finance Association, pages 283-302.
    11. Danielsen, Bartley R. & Sorescu, Sorin M., 2001. "Why Do Option Introductions Depress Stock Prices? A Study of Diminishing Short Sale Constraints," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 451-484, December.
    12. Kenneth A. Kim & Hyun-Han Shin, 2004. "The Puzzling Increase in the Underpricing of Seasoned Equity Offerings," The Financial Review, Eastern Finance Association, vol. 39(3), pages 343-365, August.
    13. 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.
    14. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," American Economic Review, American Economic Association, pages 29-32.
    15. William J. Collins & Robert A. Margo, 2003. "The Labor Market Effects of the 1960s Riots," Vanderbilt University Department of Economics Working Papers 0324, Vanderbilt University Department of Economics.
    16. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," American Economic Review, American Economic Association, pages 29-32.
    Full references (including those not matched with items on IDEAS)

    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:eme:mfipps:v:36:y:2010:i:8:p:722-737. 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: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    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.