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

Oscar Bernal Diaz, Astrid Herinckx and Ariane Szafarz

Post-Print CEB, 2014, vol. 37, 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. © 2013 Elsevier Inc.

Keywords: Disclosure requirement; Market efficiency; Regulation; Short selling; Volatility (search for similar items in EconPapers)
Date: 2014
Note: SCOPUS: ar.j
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Related works:
Journal Article: Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe (2014) Downloads
Working Paper: Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe (2013) Downloads
Working Paper: Which Short-Selling Regulation is the Least Damaging to Market Efficiency? Evidence from Europe (2012)
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