Trading options and CDS on stocks under the short sale ban

Sophie Xiaoyan Ni and Jun Pan

Journal of Banking & Finance, 2024, vol. 167, issue C

Abstract: We analyze price discovery in the options and CDS markets during the 2008 short-sale ban. Among the banned stocks, those with high open-purchased put–call ratios, low synthetic-to-stock price ratios, or high CDS rates exhibit poor performance in the following days. Additionally, options prices are more efficient for unbanned stocks during the ban period. These findings suggest that informed investors engage in derivative trading during highly distressed market conditions and that derivative prices contain more information about stock prices during the ban.

Keywords: Options; Derivatives; Short sale; Informed trading (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:167:y:2024:i:c:s0378426624001572

DOI: 10.1016/j.jbankfin.2024.107243

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