Abstract
Exploiting cross-sectional and time-series variations in European regulations during the July 2008 – June 2009 period, we show that: Prohibition on covered short selling raises bid-ask spread and reduces trading volume, prohibition on naked short selling raises both volatility and bid-ask spread, disclosure requirements raise volatility and reduce trading volume, and no regulation is effective against price decline. Overall, all short-sale regulations are detrimental to market efficiency. However, naked short-selling prohibition is the only regulation that leaves volumes unchanged while addressing the failure to deliver. Therefore, we argue that this is the least damaging to market efficiency.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.