Short-selling bans and institutional investors' herding behaviour: Evidence from the global financial crisis

Martin T. Bohl, Arne C. Klein and Pierre Siklos

International Review of Financial Analysis, 2014, vol. 33, issue C, 262-269

Abstract: The literature on short-selling restrictions focusses mainly on a ban's impact on market efficiency, liquidity and overpricing. Surprisingly, little is known about the effects of short-sale constraints on herd behaviour. Since institutional investors have come to dominate mature stock markets and rely extensively on short sales, constraining these traders may influence the asset pricing process. We investigate six stock markets that faced bans during the recent global financial crisis. Our empirical evidence shows that short-selling restrictions exhibit either no influence on herding formation or induce adverse herding. This implies a higher dispersion of returns around the market compared to rational asset pricing, which can be interpreted as an increase in uncertainty among stock market investors.

Keywords: Short-selling restrictions; Herding behavior; Institutional investors; Global financial crisis (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:33:y:2014:i:c:p:262-269

DOI: 10.1016/j.irfa.2014.03.004

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