Everything Old is New Again

5 Pages Posted: 11 Jul 2011 Last revised: 27 Jul 2011

See all articles by Chinmay Jain

Chinmay Jain

University of Ontario Institute of Technology

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Date Written: July 7, 2011

Abstract

The Securities and Exchange Commission’s new Rule 201 restricts the short selling of stocks after a 10 percent price decline, with the intention of preventing short selling from further driving down stock prices. However, empirical evidence from recent stock price declines suggests the rule is unnecessary. We found that even before the approval of Rule 201 in February of 2010, short-selling declined for stocks that experience a 10 percent intraday decline. In other words, short sellers are more active before price declines than after. This finding held when we analyzed short selling on both a daily and intraday basis. In contrast, we found that short selling increased for stocks that experience positive returns. These results held true for all market conditions, whether the market was up, down, or neutral.

Suggested Citation

Jain, Chinmay and Jain, Pankaj K. and McInish, Thomas H., Everything Old is New Again (July 7, 2011). Regulation, Vol. 34, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=1881127 or http://dx.doi.org/10.2139/ssrn.1881127

Chinmay Jain

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Pankaj K. Jain (Contact Author)

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

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