Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid-19 Crisis

• Siciliano, G. 
• Ventoruzzo, M. 

Indexed by

ESCI

Abstract

During　the　recent　COVID-19　pandemic　crisis,　stock　markets　around　the　world　have　witnessed　an　abrupt　decline　in　security　prices　and　an　unprecedented　increase　in　security　volatility.　In　response　to　a　week　of　financial　turmoil　on　the　main　European　stock　markets,　some　market　regulators　in　Europe,　including　France,　Austria,　Italy,　Spain,　Greece,　and　Belgium,　passed　temporary　short-selling　bans　in　an　attempt　to　stop　downward　speculative　pressures　on　the　equity　market　and　stabilize　and　maintain　investors’　confidence.　This　paper　examines　the　effects　of　these　short-selling　bans　on　market　quality　during　the　recent　pandemic　caused　by　the　spread　of　COVID-19.　Our　results　suggest　that　during　the　crisis,　banned　stocks　had　higher　information　asymmetry,　lower　liquidity,　and　lower　abnormal　returns　compared　with　non-banned　stocks.　These　findings　confirm　prior　theoretical　arguments　and　empirical　evidence　in　other　settings　that　short-selling　bans　are　not　effective　in　stabilizing　financial　markets　during　periods　of　heightened　uncertainty.　In　contrast,　they　appear　to　undermine　the　policy　goals　market　regulators　intended　to　promote.

Keyword

• Covid-19
• stock markets
• short-selling bans

Author Community

[Siciliano, G.] China Europe International Business School, Shanghai, China

[Ventoruzzo, M.] Bocconi University, Milano, Italy

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