TY - JOUR
T1 - Which short-selling regulation is the least damaging to market efficiency ?
T2 - Evidence from Europe
AU - Bernal, Oscar
AU - Herinckx, Astrid
AU - Szafarz, Ariane
PY - 2014/3
Y1 - 2014/3
N2 - Exploiting cross-sectional and time-series variations in European regulations during the July 2008-June 2009 period, we show that: (1) prohibition on covered short selling raises bid-ask spread and reduces trading volume, (2) prohibition on naked short selling raises both volatility and bid-ask spread, (3) disclosure requirements raise volatility and reduce trading volume, and (4) no regulation is effective against price decline. Overall, all short-sale regulations harm 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.
AB - Exploiting cross-sectional and time-series variations in European regulations during the July 2008-June 2009 period, we show that: (1) prohibition on covered short selling raises bid-ask spread and reduces trading volume, (2) prohibition on naked short selling raises both volatility and bid-ask spread, (3) disclosure requirements raise volatility and reduce trading volume, and (4) no regulation is effective against price decline. Overall, all short-sale regulations harm 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.
KW - Disclosure requirement
KW - Market efficiency
KW - Regulation
KW - Short selling
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=84891350590&partnerID=8YFLogxK
U2 - 10.1016/j.irle.2013.12.002
DO - 10.1016/j.irle.2013.12.002
M3 - Article
AN - SCOPUS:84891350590
SN - 1873-6394
VL - 37
SP - 244
EP - 256
JO - International Review of Law and Economics
JF - International Review of Law and Economics
ER -