TY - JOUR
T1 - Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid-19 Crisis
AU - Siciliano, Gianfranco
AU - Ventoruzzo, Marco
N1 - Publisher Copyright:
© 2020 De Gruyter. All rights reserved.
PY - 2020
Y1 - 2020
N2 - During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors' confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with nonbanned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.
AB - During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors' confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with nonbanned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.
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U2 - 10.1515/ecfr-2020-0019
DO - 10.1515/ecfr-2020-0019
M3 - Review article
AN - SCOPUS:85105287915
SN - 1613-2548
VL - 17
SP - 386
EP - 417
JO - European Company and Financial Law Review
JF - European Company and Financial Law Review
IS - 3-4
ER -