The sharp drop of equity prices following the outbreak of the COVID-19 pandemic was in part a rational repricing in anticipation of a decline in economic activity. Policymakers nonetheless came under pressure to stem the fall, which led several regulators to impose market-wide short-selling bans, as they had done in 2008-09 and 2011-12, while calls were also made for a prolonged stock exchange shutdown in Europe and the US. This chapter reviews the evidence on short-selling bans imposed during previous crises and assesses the case for stock exchange closures, concluding that neither measure brings benefits to financial markets.
Emergency measures for equity trading: the case against short selling bans and stock exchange shutdowns
Enriques, Luca;Pagano, Marco
2021
Abstract
The sharp drop of equity prices following the outbreak of the COVID-19 pandemic was in part a rational repricing in anticipation of a decline in economic activity. Policymakers nonetheless came under pressure to stem the fall, which led several regulators to impose market-wide short-selling bans, as they had done in 2008-09 and 2011-12, while calls were also made for a prolonged stock exchange shutdown in Europe and the US. This chapter reviews the evidence on short-selling bans imposed during previous crises and assesses the case for stock exchange closures, concluding that neither measure brings benefits to financial markets.
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