Short Sales Constraints and Financial Stability: Evidence from the Spanish 2011 Ban
Oscar Arce () and
Sergio Mayordomo ()
No 25/12, Faculty Working Papers from School of Economics and Business Administration, University of Navarra
This paper studies the main effects of the short sales ban implemented in August 2011 in the Spanish stock market along two dimensions: financial stability and market performance. Regarding the first, we show that short positions were a significant determinant of the probability of default of medium-sized banks before the ban. We find that, by weakening the contagion effect coming from the sovereign risk, the ban helped stabilise the probability of default of medium-sized banks, an effect which is not significant in the case of the largest banks and non-financials. Nonetheless, the stabilising power of the ban came at the cost of a large decline in the relative liquidity, trading volumes and price information efficiency of medium-sized banks stocks.
Keywords: Short-sales constraints; financial stability; financial institutions; credit default swap; contagion (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G18 (search for similar items in EconPapers)
Pages: 46 pages
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:una:unccee:wp2512
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