Trading Options and CDS on Stocks under the Short Sale Ban

32 Pages Posted: 4 Aug 2010 Last revised: 17 May 2019

See all articles by Sophie Xiaoyan Ni

Sophie Xiaoyan Ni

Hong Kong Baptist University (HKBU)

Jun Pan

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Date Written: May 4, 2019

Abstract

We examine the interaction between price discovery in banned stocks and the trading and prices of options and CDS during the 2008 short sale ban. We find that among banned stocks, stocks with high open purchased put-call ratios, low synthetic to stock prices ratios, or high CDS percentage change underperform in the following five days. We also find options prices are more efficient for un-banned stocks during the ban period. Our results suggest that informed investors trade derivatives in severely deteriorated market conditions, and that derivative prices are more informationally efficient than stock prices during the ban.

Keywords: Short Sale, Options, CDS, Derivatives, Infomation

JEL Classification: G14

Suggested Citation

Ni, Sophie Xiaoyan and Pan, Jun, Trading Options and CDS on Stocks under the Short Sale Ban (May 4, 2019). Available at SSRN: https://ssrn.com/abstract=1572462 or http://dx.doi.org/10.2139/ssrn.1572462

Sophie Xiaoyan Ni (Contact Author)

Hong Kong Baptist University (HKBU) ( email )

Kowloon
Hong Kong

HOME PAGE: http://sites.google.com/site/sophiexni/

Jun Pan

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
617-253-3083 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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