Abstract
The UK’s Financial Services Authority introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator’s stated objectives were to protect market quality, stabilise the market for financial-sector stocks, and prevent cross-sectoral contagion. We analyse the price, market quality and contagion effects following the imposition of the short-selling ban, and its removal in January 2009. We report evidence consistent with a short-lived overpricing (underpricing) effect immediately after the ban was imposed (lifted). There is evidence of deterioration in market quality while the ban was in force. There is evidence of cross-sectoral contagion from the financial sector to the telecommunication sector immediately before the imposition of the ban, but there is no contagion for seven other non-financial sectors. There is no evidence of contagion while the ban was in force. In terms of preventing cross-sectoral contagion, the ban may be seen as a successful governance mechanism in the regulator’s toolbox.
Original language | English |
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Pages (from-to) | 484-501 |
Number of pages | 18 |
Journal | Journal of Asset Management |
Volume | 16 |
Issue number | 7 |
DOIs | |
Publication status | Published - 01 Dec 2015 |
Externally published | Yes |
Keywords
- short-selling ban
- contagion
- abnormal returns
- market quality
- regulation