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Are Short-Selling Restrictions Effective?

Author

Listed:
  • Yashar Barardehi

    (Argyros College of Business and Economics, Chapman University, Orange, California 92866)

  • Andrew Bird

    (Argyros College of Business and Economics, Chapman University, Orange, California 92866)

  • Stephen Karolyi

    (Department of the Treasury, Office of the Comptroller of the Currency, Washington, District of Columbia 20219)

  • Thomas Ruchti

    (Department of the Treasury, Office of Financial Research, Washington, District of Columbia 20005)

Abstract

Despite strong theoretical predictions based on disagreement, limited empirical evidence links short-selling restrictions to higher prices. We test this relationship using quasi-experimental methods based on rule 201, a threshold-based policy that restricts aggressive short selling when intraday returns cross −10%. When comparing stocks on either side of the threshold in the same hour of trading, we find that the restriction leads to 8% lower short-sale volume and 35 basis points higher daily returns. These price effects do not reverse after the restriction is lifted.

Suggested Citation

  • Yashar Barardehi & Andrew Bird & Stephen Karolyi & Thomas Ruchti, 2025. "Are Short-Selling Restrictions Effective?," Management Science, INFORMS, vol. 71(5), pages 3829-3851, May.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:5:p:3829-3851
    DOI: 10.1287/mnsc.2024.4987
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