Shorting the Shorters. Evaluating the 2008 us Ban on Short Selling
We investigate the effect of the 2008 temporary ban on short sales of a long list of shares (mostly but not exclusively in the financial sector) in the US market. The ban was imposed a few days after the collapse of Lehman Brothers - on the 19 of September - and lasted for approximately three weeks. We study the impact on prices by comparing banned vs. non-banned stocks via an event study methodology. Our results generally concur with previous literature holding that the ban is largely ineffective at influencing the prices of the banned stocks. Nevertheless, we make two important contributions. First, some peculiarities do emerge from our empirical analysis at a sector level. Second, our sample of stocks for which short sales were temporarily banned is larger than the samples used in previous studies including financial assets as ADRs. In terms of policy implications, though we cannot exclude that the ban might have been helpful at providing a general reassurance to the stock market that the authorities were willing to intervene to stop the stampede - and, thus, could have helped tame the fall of the general index - the fact that no specific effect is detected for the banned stocks suggests this type of measure was broadly ineffective.(original abstract)
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