Short-Selling, Leverage and Systemic Risk

Amelia Pais and Philip Stork
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Amelia Pais: Massey University, College of Business, School of Economics and Finance, Auckland, New Zealand

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: During the Global Financial Crisis, regulators imposed short-selling bans to protect financial institutions. The rationale behind the bans was that “bear raids”, driven by short-sellers, would increase the individual and systemic risk of financial institutions, especially for institutions with high leverage. This study uses Extreme Value Theory to estimate the effect of short-selling on financial institutions’ individual and systemic risks in France, Italy and Spain; it also analyses the relationship between financial institutions’ leverage and short-selling. The results show that short-sellers appear to specifically target institutions with lower capital levels. Furthermore, institutions’ risk-levels and changes in short-selling positions tend to move in tandem.

Keywords: bear raids; short-selling bans; financial institutions’ risk; systemic risk; leverage capital requirements; Extreme Value Theory (search for similar items in EconPapers)
JEL-codes: C14 G01 G15 G21 (search for similar items in EconPapers)
Date: 2013-11-15
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20130186

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