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Summary
- On August 12, 2011, France, Belgium, Italy and Spain banned the short selling of financial names after the market’s significant move lower in the first half of August.
- Since the decision, volumes in the banned names dropped dramatically, while financial names in other countries continue to trade actively.
- Average daily price moves in countries both with and without the ban increased during the volatile period and fell after the ban took effect, with no significant difference between the two groups.
- Bid-ask spreads in countries both with and without the ban generally increased during the volatile period and fell after the ban took effect, with no significant difference between the two groups.
- Academic research on the 2008 short sale bans generally found that they adversely affected market quality and did not support prices.
- Our data agrees: short sale bans depress liquidity and do not provide demonstrably positive effects. They should not be an knee-jerk reaction to market volatility.
Click here to download the Instinet research piece.
