Working Paper: CEPR ID: DP7557
Authors: Alessandro Beber; Marco Pagano
Abstract: Most stock exchange regulators around the world reacted to the 2007-2009 crisis by imposing bans or regulatory constraints on short-selling. Short-selling restrictions were imposed and lifted at different dates in different countries, often applied to different sets of stocks and featured different degrees of stringency. We exploit this considerable variation in short-sales regimes to identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization, high volatility and no listed options; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices, except possibly for U.S. financial stocks.
Keywords: ban; crisis; liquidity; price discovery; short selling
JEL Codes: G01; G12; G14; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| short-selling bans (G18) | slower price discovery (D49) |
| short-selling bans (G18) | unaffected or decreased stock prices (G10) |
| short-selling bans (G18) | increased bid-ask spreads (G19) |