Research Shows Short Selling Restrictions Don’t Affect Markets

Dec 30 2008 | 10:45am ET

The emergency short selling restrictions imposed in various markets around the world earlier this year have not changed the behavior of stock returns, according to new research from professors at London’s Cass Business School.

Professors Ian Marsh and Norman Niemer examined daily returns on U.K., U.S., Italian, French and German shares before and after the introduction of restrictions on short selling, including shares which are subject to the restrictions, and those which are not. They found that stocks subject to the restrictions behaved very similarly both to how they behaved before their imposition and to how stocks not subject to the restrictions behaved. 

Comparing behavior across countries where the nature of the restrictions differed, the authors found no systematic patterns consistent with the expected effect of the new regulations, i.e. no evidence of a reduced probability of large price falls.

The authors also found no sign of any detrimental impact of the constraints in terms of reduced efficiency of pricing. 

Regression analysis suggested that changes in stock returns were driven mainly by other factors affecting the financial sector as a whole rather than the restrictions on short selling.

The study was commissioned by the International Securities Lending Association, the Alternative Investment Management Association and the London Investment Banking Association.

See the complete research report HERE.


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

A Hard Look At Your ‘Soft’ Hedge Fund Marketing Information

Dec 8 2016 | 9:03pm ET

Conventional wisdom holds that due diligence examines quantitative as well as qualitative...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR