Research Discussion Papers, Bank of Finland
No 3/2015:
Which financial stocks did short sellers target in the subprime crisis?
Iftekhar Hasan ()
, Nadia Massoud, Anthony Saunders and Keke Song
Abstract: Tracing the SEC ban on the short selling of financial
stocks in September 2008, this paper investigates whether such selling
activity before the 2008 short ban reflected financial companies’ risk
exposures in the subprime crisis. The evidence suggests that short sellers
sold short stocks that had the greatest asset and insolvency risk
exposures, and that the short selling of financial firms’ stocks was not
significantly greater than that of non-financial firms. When the short ban
was in effect, the market quality of financial stocks without subprime
asset exposure had deteriorated to a larger degree than that of financial
companies with subprime asset exposure. The findings imply that such a
regulation may mute the market disciplining effects of investors and may
also serve as a counterweight to any perceived macro or systemic risk
reduction benefits resulting from such a ban.
Keywords: short selling; subprime assets; financial crisis; short-sale ban; CDS spread; (follow links to similar papers)
JEL-Codes: G01; G14; G18; G28; G33; (follow links to similar papers)
58 pages, February 13, 2015
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URN:NBN:fi:bof-201502131047 
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- This paper is published as:
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Hasan, Iftekhar, Nadia Massoud, Anthony Saunders and Keke Song, (2015), 'Which financial stocks did short sellers target in the subprime crisis?', Journal of Banking and Finance, Vol. 54, May, pages 87-103
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