Tinbergen Institute Discussion Paper 13-186/IV/DSF68
During the Global Financial Crisis, regulators imposed short-selling bans to protect financial institutions. The rationale behind the bans was that bear raids, driven by short-sellers, would increase the individual and systemic risk of financial institutions, especially for institutions with high leverage. This study uses Extreme Value Theory to estimate the effect of short-selling on financial institutions individual and systemic risks in France, Italy and Spain; it also analyses the relationship between financial institutions leverage and short-selling. The results show that short-sellers appear to specifically target institutions with lower capital levels. Furthermore, institutions risk-levels and changes in short-selling positions tend to move in tandem.
bear raids short-selling bans financial institutions risk systemic risk leverage capital requirements Extreme Value Theory