Are Short Selling Restrictions Effective?

64 Pages Posted: 19 Mar 2019 Last revised: 2 Feb 2023

See all articles by Yashar H. Barardehi

Yashar H. Barardehi

Chapman University - The George L. Argyros School of Business & Economics; U.S. Securities and Exchange Commission

Andrew Bird

Chapman University - The George L. Argyros School of Business & Economics

Stephen A. Karolyi

Office of the Comptroller of the Currency

Thomas Ruchti

Government of the United States of America - Office of Financial Research

Date Written: November 19, 2019

Abstract

Despite strong theoretical predictions based on disagreement, limited empirical evidence has linked short selling restrictions to higher prices. We test this relationship using quasi-experimental methods based on Rule 201, a threshold-based policy that restricts aggressive short selling when intraday returns cross -10%. When comparing stocks on either side of the threshold in the same hour of trading, we find that the restriction leads to 8% lower short sale volume and 35 bps higher daily returns. These price effects do not reverse after the restriction is lifted.

Keywords: short selling, uptick rule, securities regulation, Rule 201, short selling restrictions

JEL Classification: G12, G14

Suggested Citation

Barardehi, Yashar and Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas, Are Short Selling Restrictions Effective? (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3343797 or http://dx.doi.org/10.2139/ssrn.3343797

Yashar Barardehi (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

HOME PAGE: http://sites.google.com/site/barardehi/

U.S. Securities and Exchange Commission ( email )

Andrew Bird

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Stephen A. Karolyi

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Thomas Ruchti

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

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