Short-Selling Bans and Contagion Risk
Journal of Financial Transformation, Forthcoming
Posted: 20 Feb 2012 Last revised: 27 Feb 2012
Date Written: February 9, 2012
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: Suggested Citation