Spillover Effects of Counter-cyclical Market Regulation: Evidence from the 2008 Ban on Short Sales

The ban on shorting had negative effects on the hedge fund industry. It also had a negative impact on the returns and the market quality of the stocks placed off limits by the ban.

Author(s) :

Abraham Lioui

Professor of Finance, EDHEC Business School and Member, EDHEC Risk Institute

Presentation :

We look at the impact of the ban on broad market indices in the US and in Europe (the United Kingdom, France, and Germany). Since these indices and their performance are of great concern to the asset management and hedge fund industries, it is important for practitioners and policymakers to understand the impact of changing the rules of the game (banning short sales) on the return distribution of these indices and to assess the potential spillover effects of a counter-cyclical regulation affecting only one segment of the financial market. We show that the ban had a broad impact on the markets. It was responsible for a substantial increase in market volatility. The impact of the ban on the higher moments of index returns is not systematic (skewness and kurtosis of the return distribution of only few indices were affected) or robust (using some robust measures of higher moments makes the impact of the ban disappear). Thus, the ban did not ease the downward pressure in the financial markets. The market seems not to believe that short sellers or the hedge fund industry were responsible for the turmoil of 2008.
Pdf
Spillover Effects of Counter-cyclical Market Regulation: Evidence from the 2008 ...
(-1.00 B)
Type : Position paper
Date : le 07/04/2010
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu ] Les opinions exprimées sont celles des auteurs et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

See Also

EDHEC consolidates its position as a world-leading school for business and entrepreneurship
- 03-07-2017
Founded by entrepreneurs, EDHEC has embraced the fundamental values of business for...
Station F successfully inaugurated in the presence of Emmanuel Macron and EDHEC
- 29-06-2017
EDHEC announced this May that it had joined Station F, the world’s biggest start-up...
- 22-06-2017
Peter Daly and Dennis Davy, professors at EDHEC Business School specialised in Language...
Financial Times ranking 2017: #1 Master in Finance Worldwide
- 19-06-2017
EDHEC Business School’s Master in Finance tops the Financial Times Masters in Finance...