Short-Selling Bans and Bank Stability

43 Pages Posted: 4 Jan 2016 Last revised: 16 Dec 2017

See all articles by Alessandro Beber

Alessandro Beber

Cass Business School; Centre for Economic Policy Research (CEPR)

Daniela Fabbri

City University London - Sir John Cass Business School

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2017

Abstract

In both the subprime crisis and the euro-area crisis, regulators imposed bans on short sales, aimed mainly at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators’ intentions, financial institutions whose stocks were banned experienced greater increases in the probability of default and volatility than unbanned ones, and these increases were larger for more vulnerable financial institutions. To take into account the endogeneity of short sales bans, we match banned financial institutions with unbanned ones of similar size and riskiness, and instrument the 2011 ban decisions with regulators’ propensity to impose a ban in the 2008 crisis.

Keywords: short selling, ban, financial crisis, bank stability, systemic risk

JEL Classification: G01, G12, G14, G18

Suggested Citation

Beber, Alessandro and Fabbri, Daniela and Pagano, Marco and Simonelli, Saverio, Short-Selling Bans and Bank Stability (December 8, 2017). Available at SSRN: https://ssrn.com/abstract=2710371 or http://dx.doi.org/10.2139/ssrn.2710371

Alessandro Beber

Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniela Fabbri

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cinthia - Monte S. Angelo
Napoli, Napoli 80126
Italy
0039 081 675366 (Phone)

HOME PAGE: http://www.csef.it/Simonelli

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

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