Do Short Selling Restrictions Destabilize Stock Returns? Lessons from Taiwan

33 Pages Posted: 1 May 2011

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Badye Essid

HEC Montreal - Institute of Applied Economics

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Date Written: November 1, 2010

Abstract

Short sellers have been routinely blamed for triggering, or exacerbating, stock market declines. The experience of Taiwan provides an interesting case study of the impact of short selling bans on stock returns volatility in a time series framework due to the length of time the short selling ban was in place there. Estimating several variants of an asymmetric GARCH model and a Markov switching GARCH model we find robust evidence that short selling restrictions raise stock returns volatility. The only qualifier is that the impact of short sale bans is a feature of the expansionary phase of business cycles. During recessions this effect dissipates.

Keywords: Short-Selling Bans, Taiwanese Stock Market, Asymmetric GARCH Models, Markov Switching Models

JEL Classification: G12, G14, G18

Suggested Citation

Bohl, Martin T. and Essid, Badye and Siklos, Pierre L., Do Short Selling Restrictions Destabilize Stock Returns? Lessons from Taiwan (November 1, 2010). Paolo Baffi Centre Research Paper No. 2011-88, Available at SSRN: https://ssrn.com/abstract=1825803 or http://dx.doi.org/10.2139/ssrn.1825803

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Badye Essid

HEC Montreal - Institute of Applied Economics

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
110
Abstract Views
901
rank
270,121
PlumX Metrics