Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe

Oscar Bernal, Astrid Herinckx and Ariane Szafarz

International Review of Law and Economics, 2014, vol. 37, issue C, 244-256

Abstract: Exploiting cross-sectional and time-series variations in European regulations during the July 2008–June 2009 period, we show that: (1) prohibition on covered short selling raises bid-ask spread and reduces trading volume, (2) prohibition on naked short selling raises both volatility and bid-ask spread, (3) disclosure requirements raise volatility and reduce trading volume, and (4) no regulation is effective against price decline. Overall, all short-sale regulations harm market efficiency. However, naked short-selling prohibition is the only regulation that leaves volumes unchanged while addressing the failure to deliver. Therefore, we argue that this is the least damaging to market efficiency.

Keywords: Short selling; Disclosure requirement; Market efficiency; Regulation; Volatility (search for similar items in EconPapers)
JEL-codes: G01 G14 G18 K20 O52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe (2014)
Working Paper: Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe (2013)
Working Paper: Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:37:y:2014:i:c:p:244-256

DOI: 10.1016/j.irle.2013.12.002

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