The effect of the ban on short selling on market efficiency and volatility

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

37 Downloads (Pure)

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 shortselling 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 short-selling 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 2011 FMA Annual Meeting
EditorsJ Kose
PublisherFinancial Management Association
Pages1-54
Number of pages54
Publication statusPublished - 2011
EventFinancial Management Association 2011 Annual Meeting - Denver, Colorado, United States
Duration: 20 Oct 201122 Oct 2011
http://www.fma.org/

Conference

ConferenceFinancial Management Association 2011 Annual Meeting
CountryUnited States
CityColorado
Period20/10/1122/10/11
Internet address

Fingerprint

Market volatility
Market efficiency
Short selling
Market quality
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. (2011). The effect of the ban on short selling on market efficiency and volatility. In J. Kose (Ed.), Proceedings of the 2011 FMA Annual Meeting (pp. 1-54). Financial Management Association .
Helmes, Uwe ; Henker, Julia ; Henker, Thomas. / The effect of the ban on short selling on market efficiency and volatility. Proceedings of the 2011 FMA Annual Meeting. editor / J Kose. Financial Management Association , 2011. pp. 1-54
@inproceedings{3a3f04dc6dd244a8b7dd0b62fd91a249,
title = "The effect of the ban on short selling on market efficiency and volatility",
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 shortselling 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 short-selling 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.",
author = "Uwe Helmes and Julia Henker and Thomas Henker",
note = "{\circledC} Copyright Uwe Helmes, Julia Henker & Thomas Henker, 2011",
year = "2011",
language = "English",
pages = "1--54",
editor = "J Kose",
booktitle = "Proceedings of the 2011 FMA Annual Meeting",
publisher = "Financial Management Association",

}

Helmes, U, Henker, J & Henker, T 2011, The effect of the ban on short selling on market efficiency and volatility. in J Kose (ed.), Proceedings of the 2011 FMA Annual Meeting. Financial Management Association , pp. 1-54, Financial Management Association 2011 Annual Meeting, Colorado, United States, 20/10/11.

The effect of the ban on short selling on market efficiency and volatility. / Helmes, Uwe; Henker, Julia; Henker, Thomas.

Proceedings of the 2011 FMA Annual Meeting. ed. / J Kose. Financial Management Association , 2011. p. 1-54.

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

TY - GEN

T1 - The effect of the ban on short selling on market efficiency and volatility

AU - Helmes, Uwe

AU - Henker, Julia

AU - Henker, Thomas

N1 - © Copyright Uwe Helmes, Julia Henker & Thomas Henker, 2011

PY - 2011

Y1 - 2011

N2 - 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 shortselling 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 short-selling 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.

AB - 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 shortselling 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 short-selling 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.

M3 - Conference contribution

SP - 1

EP - 54

BT - Proceedings of the 2011 FMA Annual Meeting

A2 - Kose, J

PB - Financial Management Association

ER -

Helmes U, Henker J, Henker T. The effect of the ban on short selling on market efficiency and volatility. In Kose J, editor, Proceedings of the 2011 FMA Annual Meeting. Financial Management Association . 2011. p. 1-54