Emergency Measures for Equity Trading: The Case Against Short-Selling Bans and Stock Exchange Shutdowns

Forthcoming, Christos Gortsos and Wolf-Georg Ringe (eds), Global Pandemic Crisis and Financial Stability

European Corporate Governance Institute - Law Working Paper, 513/2020

15 Pages Posted: 15 May 2020 Last revised: 18 May 2020

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

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); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: May 11, 2020

Abstract

After the COVID-19 crisis struck, equity prices abruptly plunged across the world. The clear prospect of an almost unprecedented decrease in supply and demand, coupled with extreme uncertainty about the longer-term prospects for the economy worldwide, justified the price adjustments. Yet, in conditions of plummeting prices and high volatility, policymakers around the world felt under pressure ‘to do something’ to stop the downward trend in market prices. As was the case during the financial crises of 2008-09 and 2011-12, these pressures have quickly led to the adoption of market-wide short-selling bans. In addition, both in Europe and in the US, there have been calls for an even more drastic measure: a lasting ‘stock exchange holiday’. This chapter reviews the evidence on the effects of short-selling bans during the financial crisis and discusses the merits of stock exchange holidays and concludes that neither of these measures bring benefits to financial markets.

Keywords: COVID-19 Crisis, Equity Markets, Securities Regulation, Short-selling bans, Stock Exchanges

JEL Classification: G18, K22

Suggested Citation

Enriques, Luca and Pagano, Marco, Emergency Measures for Equity Trading: The Case Against Short-Selling Bans and Stock Exchange Shutdowns (May 11, 2020). Forthcoming, Christos Gortsos and Wolf-Georg Ringe (eds), Global Pandemic Crisis and Financial Stability; European Corporate Governance Institute - Law Working Paper, 513/2020. Available at SSRN: https://ssrn.com/abstract=3598151

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

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European Corporate Governance Institute (ECGI)

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HOME PAGE: http:/www.ecgi.org

Marco Pagano

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

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Napoli, 80126
Italy
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+39 081 7663540 (Fax)

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

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Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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