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Which financial stocks did short sellers target in the subprime crisis?

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  • Hasan, Iftekhar
  • Massoud, Nadia
  • Saunders, Anthony
  • Song, Keke

Abstract

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies' risk exposures in the subprime crisis. The evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms' stocks was not significantly greater than that of non-financial firms. When the short ban was in effect, the market quality of financial stocks without subprime asset exposure had deteriorated to a larger degree than that of financial companies with subprime asset exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also serve as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.

Suggested Citation

  • Hasan, Iftekhar & Massoud, Nadia & Saunders, Anthony & Song, Keke, 2015. "Which financial stocks did short sellers target in the subprime crisis?," Bank of Finland Research Discussion Papers 3/2015, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2015_003
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    File URL: https://www.econstor.eu/bitstream/10419/212311/1/bof-rdp2015-003.pdf
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    References listed on IDEAS

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    Cited by:

    1. Wang, Yuchen & Wang, Xiaoming, 2023. "Economic policy uncertainty and information intermediary: The case of short seller," Economic Modelling, Elsevier, vol. 120(C).

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    More about this item

    Keywords

    short selling; subprime assets; financial crisis; short-sale ban; CDS spread;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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