The Undesirable Effects of Banning Short Sales
An in-depth study of the short-selling market calls into question both the reasons for the decision to ban short selling and the prejudices that weigh on those who short.
Professor of Finance, EDHEC Risk and Asset Management Research Centre
According to recently published data (for the United States in particular), a large majority of short sellers are market makers who are hedging their bets on the options markets. They were not affected by the ban, which means that those who were using options to take synthetic short positions continued to do so. The others involved in short selling are mainly hedge funds. The average return over the last ten years for hedge funds that used short-sale, convertible arbitrage and long/short strategies was 3%, 4.75% and 7.00% respectively (Le Sourd 2009). One can hardly argue that they were over-informed and that they earned abnormal returns.
The Undesirable Effects of Banning Short Sales...
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