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The COVID-19 pandemic, short-sale ban, and market efficiency: empirical evidence from the European equity markets

Seungho Lee (seungho.lee@abdn.ac.uk)
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Seungho Lee: University of Aberdeen

Journal of Asset Management, 2022, vol. 23, issue 2, No 6, 156-171

Abstract: Abstract This study looks at the inefficiency of stock indices of France, Italy, and Spain around their financial regulatory authorities’ short-sale ban during the COVID-19 pandemic crisis. The empirical analysis of this study provides evidence of price predictability of the basis of futures contract prior to the short-sale restriction. Moreover, the results show a significant underpricing in futures contracts of FTSE MIB and IBEX35 indices while the two months of short-sale banned period. These findings suggest that prohibiting short selling during the market downturn might undermine the stock markets’ efficiency and generate arbitrage opportunities for speculative investors.

Keywords: Speculation; Efficient markets; Futures arbitrage; COVID-19 (search for similar items in EconPapers)
JEL-codes: F21 G11 G12 G14 G18 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s41260-021-00254-w

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