The effects of the 2008 short‐sales ban

The effects of the 2008 short‐sales ban Purpose – The paper aims to investigate the effectiveness of the ban on short trading of stocks on the London Stock Exchange, introduced in September 2008 in the immediate aftermath of the collapse of Lehman Brothers. In particular, the paper investigates how far the ban succeeded in achieving the objectives set out by the regulator, the Financial Services Authority (FSA). Design/methodology/approach – The approach involves comparing the returns on a portfolio of stocks covered by the short‐sales ban with a portfolio of financial stocks exempt from the ban as a control group. Findings – The paper presents evidence to show the effects to the ban to have been mostly confined to a large first‐day return. Beyond that, there is some evidence that volatility was diverted from stocks covered by the ban to those for which short‐sales were still permitted. Investors seem to have been wary of buying banned stocks when good news arrived, presumably out of fear that they may be overpriced. Research limitations/implications – All event studies are subject to the curse of the counterfactual: what would have happened if the event had not occurred? The problem is especially acute here, however, because the background was the most turbulent in modern economic and financial history. Practical implications – The paper shows the limited value of short‐sales bans over anything beyond the very short‐term. Originality/value – This paper helps to inform regulatory decision‐making in financial crises. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Regulation and Compliance Emerald Publishing

The effects of the 2008 short‐sales ban

Loading next page...
 
/lp/emerald-publishing/the-effects-of-the-2008-short-sales-ban-pEBs6UTwFS
Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1358-1988
DOI
10.1108/JFRC-11-2012-0045
Publisher site
See Article on Publisher Site

Abstract

Purpose – The paper aims to investigate the effectiveness of the ban on short trading of stocks on the London Stock Exchange, introduced in September 2008 in the immediate aftermath of the collapse of Lehman Brothers. In particular, the paper investigates how far the ban succeeded in achieving the objectives set out by the regulator, the Financial Services Authority (FSA). Design/methodology/approach – The approach involves comparing the returns on a portfolio of stocks covered by the short‐sales ban with a portfolio of financial stocks exempt from the ban as a control group. Findings – The paper presents evidence to show the effects to the ban to have been mostly confined to a large first‐day return. Beyond that, there is some evidence that volatility was diverted from stocks covered by the ban to those for which short‐sales were still permitted. Investors seem to have been wary of buying banned stocks when good news arrived, presumably out of fear that they may be overpriced. Research limitations/implications – All event studies are subject to the curse of the counterfactual: what would have happened if the event had not occurred? The problem is especially acute here, however, because the background was the most turbulent in modern economic and financial history. Practical implications – The paper shows the limited value of short‐sales bans over anything beyond the very short‐term. Originality/value – This paper helps to inform regulatory decision‐making in financial crises.

Journal

Journal of Financial Regulation and ComplianceEmerald Publishing

Published: Nov 8, 2013

Keywords: Event studies; Financial crises; Short‐sales bans

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off