Short-Selling Bans and Contagion Risk

Journal of Financial Transformation, Forthcoming

Posted: 20 Feb 2012 Last revised: 27 Feb 2012

See all articles by Amelia Pais

Amelia Pais

Massey University - Department of Commerce

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: February 9, 2012

Abstract

Starting in September 2008, market regulators from stock markets across the world have introduced, at different points in time and for different periods of length, a ban on short-selling financial institution’s shares. The argument for the bans is that short-selling increases the volatility and contagion risk of financial institutions. This paper uses Extreme Value Theory to calculate univariate and contagion risk across financial institutions, and the effect of short-selling on those risks in banks in Belgium, France, Italy and Spain. We find that changes in these downside risk metrics are positively related with changes in short-selling positions.

Keywords: systemic risk, short selling, bank’s risk, Extreme Value Theory

JEL Classification: C14, G01, G15, G21

Suggested Citation

Pais, Amelia and Stork, Philip A., Short-Selling Bans and Contagion Risk (February 9, 2012). Journal of Financial Transformation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2008205

Amelia Pais

Massey University - Department of Commerce ( email )

Private Bag 102-904
Auckland
New Zealand

Philip A. Stork (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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