Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 365: Get Shorty? - Market Impact of the 2008-09 U.K. Short Selling Ban
Fredrik Hansson () and Erik Rüdow Fors ()
Additional contact information
Fredrik Hansson: Centre for Finance and, Postal: Department of Economics., School of Business, Economics and Law, Göteborg University, Box 640, SE 40530 GÖTEBORG
Erik Rüdow Fors: Centre for Finance and, Postal: Department of Economics., School of Business, Economics and Law, Göteborg University, Box 640, SE 40530 GÖTEBORG
Abstract: In September 2008, during one of the most intense periods of the financial crisis, the Financial Services Authority (FSA) decided to ban short-selling in financial stocks during four months in the U.K. market. The aim of the ban was to guard against instability and calm the market. This paper examines the effect of the ban on the banned stocks in terms of returns and market quality measured by abnormal returns, volatility, bid-ask spreads and volumes using intraday data. Event study methods and panel regressions are used to isolate the effects of the ban as specifically as possible. We do not find evidence of any effects of the ban on abnormal returns and volatilities, largely due to the extreme levels of noise during the financial crisis. However, we do find strong evidence that the bid-ask spreads in the affected stocks widened during the ban and that the trading activity in the banned stocks decreased.
Keywords: short selling; market quality; FSA; regulation
40 pages, June 11, 2009
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