The Double-Edged Sword of The 2020 European Short-Selling Bans

80 Pages Posted: 15 Sep 2020 Last revised: 22 Jan 2024

See all articles by Pasquale Della Corte

Pasquale Della Corte

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research)

Dimitris Papadimitriou

King's College London

Nikolaos Rapanos

Imperial College Business School

Date Written: November 19, 2021

Abstract

We study the effects of short-selling bans on liquidity and prices through the lens
of a model that incorporates a regulator aiming at preventing a significant price decline. Empirically, we evaluate our model’s predictions by exploiting the introduction
of short-sales restrictions in some but not all European countries during the COVID-19 pandemic, while measuring the share of informed stockholders with institutional
ownership. Consistent with our model, bans were detrimental to market liquidity and
failed to support average returns, but were effective in limiting large price drawdowns
in countries that implemented short-selling bans, especially for stocks with low institutional ownership.

Keywords: short selling, ban, liquidity, price discovery, COVID

JEL Classification: G01, G12, G14, G18

Suggested Citation

Della Corte, Pasquale and Kosowski, Robert and Papadimitriou, Dimitris and Rapanos, Nikolaos, The Double-Edged Sword of The 2020 European Short-Selling Bans (November 19, 2021). Available at SSRN: https://ssrn.com/abstract=3692789 or http://dx.doi.org/10.2139/ssrn.3692789

Pasquale Della Corte

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom
+44(0)20 759 49331 (Phone)

HOME PAGE: http://sites.google.com/view/pasqualedellacorte

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

London
United Kingdom

HOME PAGE: http://www.cepr.org/

Dimitris Papadimitriou

King's College London ( email )

Melbourne House
44-46 Aldwych
London, WC2B 4LL
United Kingdom

Nikolaos Rapanos (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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