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 non-banned 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.

Banning Cassandra from the market? An empirical analysis of short-selling bans during the Covid-19 crisis

Siciliano, Gianfranco;Ventoruzzo, Marco
2020

Abstract

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 non-banned 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.
2020
Siciliano, Gianfranco; Ventoruzzo, Marco
File in questo prodotto:
File Dimensione Formato  
Ventoruzzo_Siciliano_Banning Cassandra from the Market.pdf

non disponibili

Descrizione: Articolo
Tipologia: Pdf editoriale (Publisher's layout)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 4.83 MB
Formato Adobe PDF
4.83 MB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4037283
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 3
  • ???jsp.display-item.citation.isi??? 2
social impact