Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266686 
Year of Publication: 
2022
Series/Report no.: 
SAFE Working Paper No. 365
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
In theory, banning short selling stabilizes stock prices but undermines pricing efficiency and has ambiguous impacts on market liquidity. Empirical studies find mixed and conflicting results. This paper leverages cross-country policy variation during the 2020 Covid crisis to assess differential impacts of bans on stock liquidity, prices, and volatility. Results suggest that bans improved liquidity and stabilized prices for illiquid stocks but temporarily diminished liquidity for highly liquid stocks.The findings support theories in which short sale bans may improve liquidity by selectively filtering out informed- potentially predatory-traders. Thus, policies that target the most illiquid stocks may deliver better overall market quality than uniform short sale bans imposed on all stocks.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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