The Impact of the Ban on Short-Selling

Abstract

The recent market turbulence, coupled with fast-acting regulatory intervention, have presented fine-tuned stock selection and quantitative trading models with multiple unknown variables. For traders, the global restrictions on the short sale of securities, particularly those in the financial services sector, are of particular interest. This article identifies trends and changes in market micro-structure in the time period immediately preceding and during the ban. Being cognizant of the unprecedented events during the analysis period, the author takes a view that a cause-and-effect relationship can only be deciphered over more “normal” times. Therefore, the article is meant to identify trends and observations and not to attempt to establish a causal relationship.

TOPICS: Financial crises and financial market history, statistical methods, risk management