{"id":9504,"date":"2015-02-06T00:00:00","date_gmt":"2015-02-05T23:00:00","guid":{"rendered":"https:\/\/business.uc3m.es\/\/are-short-selling-bans-effective\/"},"modified":"2015-02-06T00:00:00","modified_gmt":"2015-02-05T23:00:00","slug":"are-short-selling-bans-effective","status":"publish","type":"post","link":"https:\/\/business.uc3m.es\/en\/are-short-selling-bans-effective\/","title":{"rendered":"Are Short-Selling Bans Effective?"},"content":{"rendered":"

Are short-selling bans effective in financial markets? Are the results different if action is taken only in one sector instead of on all companies? The article \u201cA study on short-selling constraints: total ban versus partial ban<\/a>\u201d by professors David Moreno<\/a> and Rosa Rodr\u00edguez, from the Department of Business Economics of UC3M<\/a>, and Esther C\u00e1ceres, a student of the Master in Finance of UC3M<\/a>, demonstrates that past short-selling bans had a positive effect on reducing stock market volatility. <\/p>\n

The financial crisis that began in 2008 resulted in a significant increase in stock price volatility. The increase in credit risk led to an increase in market risk aversion levels. As a result, stock sell orders increased, producing a widespread fall in stock prices, especially those belonging to the financial sector.
To take advantage of this bearish scenario, investors often operate through short sales. A short sale consists of selling an asset on the market that has been borrowed, with the intention of returning it to its owner at a later date. Thus, an investor who short-sold a share today at a certain price would obtain an income worth the sale price. If the price of the share fell tomorrow, that investor would buy the share on the market (at a lower price) to return it to its owner. With this operation, the investor would obtain a profit as a result of selling the share expensively today, and buying it tomorrow \u2013 with a certain probability \u2013 at a lower price. <\/p>\n

Short sales can generate spirals of falling stock prices. In high volatility scenarios such as those experienced in recent times, regulators try to solve this problem by prohibiting short selling operations. This type of measure seeks to increase market efficiency, especially during periods of stress. Thus, once the veto on short sales has been lifted, it is important to analyze whether the measure had the desired effect. <\/p>\n

Within this framework, the authors of this paper analyze the effects of an intervention (partial or total) by the CNMV on short selling operations in the Spanish stock market. In particular, the impact of two types of measures is studied: first, the partial prohibition of short sales for shares belonging to financial companies, introduced by the CNMV on August 11, 2011; this prohibition was extended until February 14, 2012. Secondly, the total prohibition of short sales for any type of share traded on the Spanish market, which took effect from July 23, 2012. This special circumstance of having two different types of restrictions in the same country provides the authors with the opportunity to analyze the existing differences in terms of the effects or results of the measures adopted in order to have useful evidence for future situations of volatility in the financial markets. <\/p>\n

The results of the study show that both prohibitions are capable of significantly reducing stock market volatility. However, the reduction is greater when the restriction is imposed on all companies. Despite being an effective measure, the authors warn that, as the literature had already shown, this type of measure negatively affects market liquidity, so it is necessary to find a balance between the positive effect of reducing volatility and the negative effect of reducing liquidity. <\/p>\n

To access the full article, click here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Are short-selling bans effective in financial markets? Are the results different if action is taken only in one sector instead of on all companies? The article \u201cA study on short-selling constraints: total ban versus partial ban\u201d by professors David Moreno and Rosa Rodr\u00edguez, from the Department of Business Economics of UC3M, and Esther C\u00e1ceres, a […]<\/p>\n","protected":false},"author":1,"featured_media":8384,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[47],"tags":[],"class_list":["post-9504","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management"],"_links":{"self":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts\/9504","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/comments?post=9504"}],"version-history":[{"count":0,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts\/9504\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/media\/8384"}],"wp:attachment":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/media?parent=9504"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/categories?post=9504"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/tags?post=9504"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}