DP7557 Short-Selling Bans around the World: Evidence from the 2007-09 Crisis

Author(s): Alessandro Beber , Marco Pagano

Publication Date: November 2009

Date Revised: January 2010

Keyword(s): ban , crisis , liquidity , price discovery , short selling

JEL(s): G01 , G12 , G14 , G18

Programme Areas: Financial Economics

Link to this Page: www.cepr.org/pubs/dps/DP7557.asp

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.