The 2020 European Short-Selling Ban and the Effects on Market Quality

38 Pages Posted: 18 Aug 2021

Date Written: December 21, 2020

Abstract

Responding to the dramatic price declines during the COVID-19 pandemic, six European countries introduced short-selling bans in March 2020. We analyze how these restrictions affected the market quality by comparing countries with and without bans. We observe for ban countries relatively lower market liquidity, lower trading volume, and wider bid-ask spreads. Moreover, regulators’ aim to prevent price declines and reduce volatility failed, as ban and no-ban countries reveal no differences and prices increased. Our results clearly detail the negative market-quality effects resulting from restrictions, especially for smaller markets and firms. Consequently, this regulatory interference did not protect but harmed investors.

Keywords: Short-selling ban, COVID-19, market-quality measures, liquidity, volatility, trading volume

JEL Classification: D02, G12, G14, G18, G28

Suggested Citation

Bessler, Wolfgang and Vendrasco, Marco, The 2020 European Short-Selling Ban and the Effects on Market Quality (December 21, 2020). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3894258 or http://dx.doi.org/10.2139/ssrn.3894258

Wolfgang Bessler (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Marco Vendrasco

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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