Stabilizing the market with short sale constraint? New evidence from price jump activities

Jin-Huei Yeh and Lien-Chuan Chen

Finance Research Letters, 2014, vol. 11, issue 3, 238-246

Abstract: We re-examine the impact of short-sale constraints (SSC) on market stabilization via realized jump activities during 2002–2009 to circumvent the reverse causality in identifying the policy effects of SSC. We observed that the abnormal downturns under tighter short sale constraints are significantly larger whereas there is no difference for abnormal upturns. Our empirical results survive across a sequence of robustness examinations controlled for market illiquidity. The findings do not support the claims by regulators that restraining short-sales can stabilize prices; instead, SSC has led to a less efficient market with stronger extreme downward returns.

Keywords: Short sale constraint; Market stabilization; Put-call-parity; Jump intensity; Jump size; Liquidity (search for similar items in EconPapers)
JEL-codes: G01 G14 G18 G28 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:3:p:238-246

DOI: 10.1016/j.frl.2014.02.005

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