Did the 2008 Short-Sale Ban Prevent a Market Crash?

16 Pages Posted: 21 Nov 2015

See all articles by Vanthuan Nguyen

Vanthuan Nguyen

Morgan State University

Alex P. Tang

Morgan State University

Date Written: November 19, 2015

Abstract

This paper empirically examines the efficacy of the 2008 short-sale ban. We find that the firms covered by the ban experience positive abnormal returns at the ban initiation. When the ban expires, small banks, medium/large banks, and brokerage firms continue to experience positive abnormal returns, while other firms experience negative abnormal returns. The volatilities at the individual stock level and market level are higher in the ban period and remain high in the post-ban period. The frequency of extreme negative returns is smaller and the frequency of extreme positive returns is larger in the ban period relative to the pre-ban period. The extreme negative returns continue to decline and the extreme positive returns remain high in the post-ban period. Our overall evidence indicates that the ban has been successful at what it was intended to achieve, though we cannot rule out the possibility that liquidity and efficiency have deteriorated as a result of the ban.

Suggested Citation

Nguyen, Vanthuan and Tang, Alex P., Did the 2008 Short-Sale Ban Prevent a Market Crash? (November 19, 2015). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 21, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=2693049

Vanthuan Nguyen (Contact Author)

Morgan State University ( email )

School of Business and Management
1700 East Cold Spring Lane
Baltimore, MD 21251
United States

Alex P. Tang

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

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