Shackling Short Sellers: The 2008 Shorting Ban

55 Pages Posted: 2 Jun 2009 Last revised: 1 Nov 2012

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Charles M. Jones

Columbia University

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Date Written: October 30, 2012

Abstract

In September 2008, the U.S. Securities and Exchange Commission (SEC) temporarily banned most short sales in nearly 1,000 financial stocks. We examine the ban’s effect on market quality, shorting activity, the aggressiveness of short sellers, and stock prices. The ban’s effects are concentrated in larger stocks; there is little effect on firms in the lower half of the size distribution. Although shorting activity drops by about 77% in large-cap stocks, stock prices appear unaffected by the ban. All but the smallest quartile of firms subject to the ban suffer a severe degradation in market quality, as measured by quoted spreads, effective spreads, and volatility.

Keywords: short selling, financial crisis, Section 12(k)(2)

JEL Classification: G14

Suggested Citation

Boehmer, Ekkehart and Jones, Charles M. and Zhang, Xiaoyan, Shackling Short Sellers: The 2008 Shorting Ban (October 30, 2012). Available at SSRN: https://ssrn.com/abstract=1412844 or http://dx.doi.org/10.2139/ssrn.1412844

Ekkehart Boehmer (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Charles M. Jones

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Xiaoyan Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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