Effect of the Ban on Short Selling on Market Prices and Volatility

31 Pages Posted: 6 Sep 2017

See all articles by Uwe Helmes

Uwe Helmes

UNSW Business School

Julia Henker

Bond University

Thomas Henker

Bond University

Date Written: September 2017

Abstract

We examine the effects of the short‐selling ban, imposed by Australian regulators in the wake of the global financial crisis, on the trading of financial stocks. Our findings argue against commonly stated reasons for imposing short‐sale bans. We find no evidence that short‐sale restrictions provide support for stock prices or that they reduce volatility. Moreover, stocks subject to the short‐selling ban suffered a severe degradation in market quality. Controlling for the adverse effects of the financial crisis on markets, we show that short‐selling restrictions increase intraday volatility, reduce trading activity and increase bid–ask spreads.

Keywords: Short‐selling restrictions, Price support, Market quality, Short‐selling ban

Suggested Citation

Helmes, Uwe and Henker, Julia and Henker, Thomas, Effect of the Ban on Short Selling on Market Prices and Volatility (September 2017). Accounting & Finance, Vol. 57, Issue 3, pp. 727-757, 2017. Available at SSRN: https://ssrn.com/abstract=3032160 or http://dx.doi.org/10.1111/acfi.12211

Uwe Helmes (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Julia Henker

Bond University ( email )

Gold Coast, QLD 4229
Australia

Thomas Henker

Bond University ( email )

Gold Coast, QLD 4229
Australia
+61 7 5595-1561 (Phone)

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