Short-Selling Bans Around the World: Evidence from the 2007-09 Crisis

Beber, Alessandro; Pagano, Marco

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Short-Selling Bans Around the World: Evidence from the 2007-09 Crisis

CEPR Discussion Paper No. DP7557

41 Pages Posted: 11 Jan 2010

See all articles by Alessandro Beber

Alessandro Beber

Cass Business School; Centre for Economic Policy Research (CEPR)

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: November 2009

Abstract

Most stock exchange regulators around the world reacted to the financial crisis of 2007-2009 by imposing bans or regulatory constraints on short-selling by market participants. We use the large amount of evidence generated by these regime changes to investigate their effects on liquidity, price discovery and stock returns. Since bans were enacted and lifted at different dates in different countries, and in some countries applied to financial stocks only, we identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization and high volatility; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices.

Keywords: ban, crisis, liquidity, price discovery, short selling

JEL Classification: G01, G12, G14, G18

Suggested Citation: Suggested Citation

Beber, Alessandro and Pagano, Marco, Short-Selling Bans Around the World: Evidence from the 2007-09 Crisis (November 2009). CEPR Discussion Paper No. DP7557, Available at SSRN: https://ssrn.com/abstract=1533163