How the Australian ban on short selling during the GFC affected market quality and volatility

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

Abstract

We examine the effects of the short selling ban, imposed by Australian regulators in the wake of the global financial crisis, on trading of financial stocks. Unlike other developed markets,where regulators imposed short-selling restrictions for brief periods of time at the height of the financial crisis, the ban on short selling of financial stocks on the Australian Stock Exchange lasted eight months, including both the tumultuous end of 2008 and the calmer period up to May 2009. Our control group consists of matched Canadian financial institutions which were unaffected by a short selling ban. We analyze the impact of the imposed short selling constraints on measures of market quality and on stock prices using univariate and multivariate fixed effects panel regressions. As predicted by previous theoretical work, we find that stocks subject to the short selling ban suffered a severe degradation in market quality. Controlling for the adverse effects of the financial crisis on financial markets, we show that imposing constraints on shortselling reduced trading activity, increased bid and ask spreads and increased intraday volatility.Moreover, there appears to be no evidence for lasting price support from the restrictions.
Original languageEnglish
Title of host publicationProceedings of the 3rd Conference on Financial Markets and Corporate Govenance
Place of PublicationMelbourne
PublisherLa Trobe University
Pages1-55
DOIs
Publication statusPublished - 2012
EventFinancial Markets and Corporate Governance Conference - RACV Club, Melbourne, Australia
Duration: 12 Apr 201213 Apr 2012
Conference number: 3rd

Conference

ConferenceFinancial Markets and Corporate Governance Conference
CountryAustralia
CityMelbourne
Period12/04/1213/04/12

Fingerprint

Market quality
Market volatility
Short selling
Financial crisis
Financial institutions
Price support
Intraday volatility
Panel regression
Fixed effects
Financial markets
Degradation
Bid
Stock prices
Australian Stock Exchange
Global financial crisis
Trading activity

Cite this

Helmes, U., Henker, J., & Henker, T. (2012). How the Australian ban on short selling during the GFC affected market quality and volatility. In Proceedings of the 3rd Conference on Financial Markets and Corporate Govenance (pp. 1-55). Melbourne: La Trobe University. https://doi.org/10.2139/ssrn.1970711
Helmes, Uwe ; Henker, Julia ; Henker, Thomas. / How the Australian ban on short selling during the GFC affected market quality and volatility. Proceedings of the 3rd Conference on Financial Markets and Corporate Govenance. Melbourne : La Trobe University, 2012. pp. 1-55
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Helmes, U, Henker, J & Henker, T 2012, How the Australian ban on short selling during the GFC affected market quality and volatility. in Proceedings of the 3rd Conference on Financial Markets and Corporate Govenance. La Trobe University, Melbourne, pp. 1-55, Financial Markets and Corporate Governance Conference, Melbourne, Australia, 12/04/12. https://doi.org/10.2139/ssrn.1970711

How the Australian ban on short selling during the GFC affected market quality and volatility. / Helmes, Uwe; Henker, Julia; Henker, Thomas.

Proceedings of the 3rd Conference on Financial Markets and Corporate Govenance. Melbourne : La Trobe University, 2012. p. 1-55.

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

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Helmes U, Henker J, Henker T. How the Australian ban on short selling during the GFC affected market quality and volatility. In Proceedings of the 3rd Conference on Financial Markets and Corporate Govenance. Melbourne: La Trobe University. 2012. p. 1-55 https://doi.org/10.2139/ssrn.1970711