The price effect of temporary short-selling bans: Theory and evidence

Haoshu Tian, Yan, Xuemin (Sterling) and Lingling Zheng

Journal of Financial Markets, 2024, vol. 69, issue C

Abstract: We develop a model of temporary short-selling bans by extending the infinite-horizon model of Scheinkman and Xiong (2003). Our model predicts that a temporary short-selling ban leads to a speculative bubble that is the highest at the beginning of the ban and gradually converges to zero. Examining the 2008 short-selling ban in the U.S., we find evidence consistent with the model’s predictions. The innovation of our empirical design is to use the financial segments of non-banned stocks as a control group for the banned financial stocks. Our results are robust across different test specifications and different samples of stocks.

Keywords: Speculative bubble; Short-selling ban (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:69:y:2024:i:c:s1386418124000089

DOI: 10.1016/j.finmar.2024.100890

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