A study of short-selling activities by Edhec finance professor Abraham Lioui has called into question both the reasons for the decision to ban short selling and the prejudices that weig
A study of short-selling activities by Edhec finance professor Abraham Lioui has called into question both the reasons for the decision to ban short selling and the prejudices that weigh on those who short.
Among the consequences of the ban that are noted in the Edhec position paper, entitled The Undesirable Effects of Banning Short Sales, are that market volatility rose sharply because there was no clarity on the reasons behind the measure, and the impact of the ban on market volatility was greater than that of the financial crisis.
The study also finds that share prices deviated yet more from their fundamental value, the risk/return possibilities of investors worsened. However, the desired effect on market trends was not achieved – no reduction of the negative skewness of returns has been observed – and there is no evidence of the possible impact of this measure on extreme market movements.
The Edhec study confirms that the shares that were the object of the ban were relatively unaffected by it, Lioui says.
Click here to download the study.
