Short Selling: The Impact of Sec Rule 201 of 2010

Posted: 5 Jan 2012

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: February 2012

Abstract

Despite its sizeable compliance costs, we are unable to document any clear benefits of SEC Rule 201 in ensuring fair valuations and price stability, promoting higher liquidity and execution quality, or preventing a sudden flash crash or prolonged market crises. Our daily and intraday analysis of data both before and after Rule 201 finds that short sellers are naturally more active before the occurrence of negative returns, not after significant price declines. Our simulation results show that Rule 201 further curtails short selling during normal periods, but is not binding on short sellers during the volatile period of the 2008 financial crisis.

Keywords: intraday short selling, short selling return dynamics

JEL Classification: G12, G14, G17, G38

Suggested Citation

Jain, Chinmay and Jain, Pankaj K. and McInish, Thomas H., Short Selling: The Impact of Sec Rule 201 of 2010 (February 2012). Financial Review, Vol. 47, Issue 1, pp. 37-64, 2012. Available at SSRN: https://ssrn.com/abstract=1980037 or http://dx.doi.org/10.1111/j.1540-6288.2011.00320.x

Chinmay Jain

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Pankaj K. Jain

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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