Short selling constraints and stock returns volatility: empirical evidence from the German stock market

Martin T. Bohl, Gerrit Reher and Bernd Wilfling

No 4516, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: In this paper we focus on the impact of short selling restrictions on stock returns volatility. To assess potential effects econometrically we apply two distinct versions of an asymmetric Markov-switching GARCH model to the recent short selling bans on stocks of financial enterprises in Germany. We find empirical evidence that the financial crisis is accompanied by an increase in volatility persistence and that this effect is particularly pronounced for those stocks that are subject to short selling constraints. We interpret this finding as evidence of a destabilizing impact of short selling constraints on stock returns volatility.

Keywords: Financial market regulation; short selling constraints; stock returns volatility; Markov-switching GARCH models (search for similar items in EconPapers)
JEL-codes: C5 G10 G18 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-01
New Economics Papers: this item is included in nep-fmk and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Short selling constraints and stock returns volatility: Empirical evidence from the German stock market (2016)
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