Chapter 14 - Short Selling in France during the Crisis, the Bans, and What Has Changed since the Euro Correction

Abstract

In the wake of the stock market turmoil of 2008, market regulators all over the world started imposing restrictions on short selling. This chapter examines the restrictions on short selling France, which introduced a naked short selling ban and disclosure regime for financial stocks. The study shows that the overall effect of the short selling ban in France was not positive. The introduction of the ban was followed by a short period in which affected stocks slightly outperformed unaffected stocks, which could be attributed to certain short-term behavioral effects of the short selling ban. However, the statistical analysis presented earlier shows that the portfolios of restricted and unrestricted stocks evolve with only minor differences. The comparison of France and Switzerland reveals that Swiss financial stocks, which were affected by the ban for only 3 months, move in an almost identical manner as French ones both inside and outside the ban period in Switzerland. Swedish financial stocks denominated in euros perform worse than French stocks, although if the distortive effect of the krona's depreciation is eliminated, it produces a high degree of similarity. The case of France, which still maintains a ban on naked short selling and a disclosure regime for short positions, shows that the restrictions were ineffective both in the context of France and in comparison to other countries.