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Do Short Selling Restrictions Destabilize Stock Markets? Lessons from Taiwan

Martin T. Bohl, Badye Essid and Pierre Siklos ()
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Martin T. Bohl: Westfalische Wilhelms-University Munster
Badye Essid: Centre for International Governance Innovation

No 112011, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Short sellers have been routinely blamed for triggering, or exacerbating, stock market declines. The experience of Taiwan provides an interesting case study of the impact of short selling bans on stock returns volatility in a time series framework due to the length of time the short selling ban was in place there. Estimating several variants of an asymmetric GARCH model and a Markov switching GARCH model we find robust evidence that short selling restrictions raise stock returns volatility. The only qualifier is that the impact of short sale bans is a feature of the expansionary phase of business cycles. During recessions this effect dissipates.

Keywords: Short-Selling Bans; Taiwanese Stock Market; Asymmetric GARCH Models; Markov Switching Models (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 (search for similar items in EconPapers)
Date: 2011-04
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Journal Article: Do short selling restrictions destabilize stock markets? Lessons from Taiwan (2012) Downloads
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