Short Selling in Emerging Markets: A Comparison of Market Performance During the Global Financial Crisis

Abstract:     
This chapter reviews short selling practices in emerging markets and market performances during the global financial crisis. In contrast to developed markets, many emerging countries do not permit short selling, which can pose severe limitations on market liquidity. We compare market volatility, the Sharpe ratio, maximum drawdown, and skewness across different countries from May 2002 to November 2010. Moreover, we show that a market crash impact is generally weak in countries where short selling is allowed.

Keywords: Exogenous liquidity, Market liquidity, Market volatility, Maximum drawdown, Mean volatility, Sharpe ratio, Skewness

JEL Classification: G10, G12, G24, G28

Accepted Paper Series