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Are Short-Selling Restrictions Effective?

Yashar Barardehi (), Andrew Bird (), Stephen Karolyi () and Thomas Ruchti ()
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Yashar Barardehi: Argyros College of Business and Economics, Chapman University, Orange, California 92866
Andrew Bird: Argyros College of Business and Economics, Chapman University, Orange, California 92866
Stephen Karolyi: Department of the Treasury, Office of the Comptroller of the Currency, Washington, District of Columbia 20219
Thomas Ruchti: Department of the Treasury, Office of Financial Research, Washington, District of Columbia 20005

Management Science, 2025, vol. 71, issue 5, 3829-3851

Abstract: Despite strong theoretical predictions based on disagreement, limited empirical evidence links short-selling restrictions to higher prices. We test this relationship using quasi-experimental methods based on rule 201, a threshold-based policy that restricts aggressive short selling when intraday returns cross −10%. When comparing stocks on either side of the threshold in the same hour of trading, we find that the restriction leads to 8% lower short-sale volume and 35 basis points higher daily returns. These price effects do not reverse after the restriction is lifted.

Keywords: short selling; uptick rule; securities regulation; rule 201; short selling restrictions (search for similar items in EconPapers)
Date: 2025
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