Trading Options and CDS on Stocks under the Short Sale Ban
32 Pages Posted: 4 Aug 2010 Last revised: 17 May 2019
Date Written: May 4, 2019
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: Suggested Citation