Back to the Futures: When Short Selling is Banned
50 Pages Posted: 17 Jul 2019 Last revised: 7 Oct 2019
Date Written: August 15, 2019
We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, we find that SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Given that SSFs trading in US still lags behind other countries, our findings project an increasingly important role of SSFs in the US financial market.
Keywords: Short-Selling Ban, Financial Crisis, Single-Stock Futures, Price Discovery, Market Quality
JEL Classification: G01, G14
Suggested Citation: Suggested Citation