Latest research adds to evidence that short selling bans don't work
16 January 2012 London
Image: Shutterstock
Bans on short-selling in the eurozone are unlikely to prevent share prices from continuing to fall and could cause "more harm than good", according to a Cass Business School study.
In the largest study of its kind, Professor Alessandro Beber from Cass, and his co-author, Marco Pagano from the University of Naples, examined the impact of the ban on 30 countries using data from nearly 17,000 stocks between 2008 and 2009.
The findings provide new and compelling evidence that curbs on short-selling fail to support stock prices, severely reduce liquidity and restrict the flow of information to the market.
Professor Beber said: "According to our study, the knee-jerk reaction of most stock exchange regulators around the globe had a severely damaging effect on market liquidity. This was especially pronounced for stocks with small market capitalisation, high volatility and no listed options.
According to the report, Italy was hardest hit by the ban, followed by Denmark, Australia and Switzerland. Professor Beber said: "We found countries which already have liquidity problems because of the structure of their capital markets suffered the most damage from the ban."
Spain, Belgium, Norway, Ireland, USA, UK experienced the next largest fall in liquidity while the Netherlands, South Korea and Austria were among those least affected.
In the largest study of its kind, Professor Alessandro Beber from Cass, and his co-author, Marco Pagano from the University of Naples, examined the impact of the ban on 30 countries using data from nearly 17,000 stocks between 2008 and 2009.
The findings provide new and compelling evidence that curbs on short-selling fail to support stock prices, severely reduce liquidity and restrict the flow of information to the market.
Professor Beber said: "According to our study, the knee-jerk reaction of most stock exchange regulators around the globe had a severely damaging effect on market liquidity. This was especially pronounced for stocks with small market capitalisation, high volatility and no listed options.
According to the report, Italy was hardest hit by the ban, followed by Denmark, Australia and Switzerland. Professor Beber said: "We found countries which already have liquidity problems because of the structure of their capital markets suffered the most damage from the ban."
Spain, Belgium, Norway, Ireland, USA, UK experienced the next largest fall in liquidity while the Netherlands, South Korea and Austria were among those least affected.
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