Abstract

http://ssrn.com/abstract=1364390
 
 

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Price Inflation and Wealth Transfer During the 2008 SEC Short-Sale Ban


Lawrence Harris


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Ethan Namvar


University of California, Berkeley - Haas School of Business

Blake Phillips


University of Waterloo

June 18, 2009

The Journal of Investment Management, Second Quarter, 2013
Harry M. Markowitz Special Distinction Award 2013

Abstract:     
Using a factor-analytic model that extracts common valuation information from the prices of stocks that were not banned, we estimate that the ban on short-selling financial stocks imposed by the SEC in September 2008 led to substantial price inflation in the banned stocks. The inflation reversed somewhat following the ban, but the data are too noisy to conclusively link the reversal to the ban. Other factors such as the pending TARP legislation may also have affected prices, though our results suggest that it was not a significant factor. If prices were inflated, buyers paid more than they otherwise would have paid for the banned stocks during the period of the ban. We provide an estimate of $4.9 billion for the resulting wealth transfer from buyers to sellers. Such transfers should interest policymakers concerned about maintaining fair markets.

Number of Pages in PDF File: 43

Keywords: Short-sale Ban, SEC, Securities and Exchange Commission, Short-Sale Constraints, Financial Crisis

JEL Classification: G12, G14, G18, G28

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Date posted: March 23, 2009 ; Last revised: May 9, 2014

Suggested Citation

Harris, Lawrence and Namvar, Ethan and Phillips, Blake, Price Inflation and Wealth Transfer During the 2008 SEC Short-Sale Ban (June 18, 2009). The Journal of Investment Management, Second Quarter, 2013. Available at SSRN: http://ssrn.com/abstract=1364390 or http://dx.doi.org/10.2139/ssrn.1364390

Contact Information

Lawrence Harris
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)
Ethan Namvar (Contact Author)
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
510-642-7989 (Phone)
HOME PAGE: http://haas.berkeley.edu
Blake Phillips
University of Waterloo ( email )
Waterloo, Ontario N2L 3G1
Canada
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