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Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis

29 Pages Posted: 23 Jan 2011 Last revised: 11 Oct 2011

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics

Martin T. Bohl

University of Muenster

Arne Klein

University of Muenster

Date Written: July 30, 2011

Abstract

The literature on short selling restrictions focuses mainly on a ban's impact on market efficiency, liquidity and overpricing. Surprisingly, little is known about the effects of short selling restrictions on institutional investors' trading behavior.Since institutional investors dominate mature stock markets and mainly use short sales, constraining these traders may in influence the asset pricing process. We investigate six stock markets facing bans associated with the recent global financial crisis. Our empirical evidence shows that short selling restrictions exhibit either no in influence on herding behavior or induce adverse herding. This implies a higher dispersion of returns around the market compared to rational asset pricing which can be interpreted as an increase in uncertainty in stock markets.

Keywords: Short Selling Ban, Herding, Herding Measure, Bootstrapping

JEL Classification: G12, G14, G15, G18

Suggested Citation

Siklos, Pierre L. and Bohl, Martin T. and Klein, Arne, Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis (July 30, 2011). Available at SSRN: https://ssrn.com/abstract=1744365 or http://dx.doi.org/10.2139/ssrn.1744365

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext. 2559 (Phone)
519-888-1015 (Fax)

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Arne Klein

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

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