The cross market effects of short sale restrictions |
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| Affiliation: | 1. University of Tasmania, Private Bag 85 Hobart, Tasmania 7001, Australia;2. CAMA, Australian National University, Canberra, Australia;3. CFAP, University of Cambridge, Cambridge, UK;4. Discipline of Finance, The University of Sydney Business School, Australia;5. Eskisehir Osmangazi University, IIBF Isletme Bolumu, 26480 Meşelik-Eskisehir, Turkey;6. CEE, Bogazici University, 34342 Bebek, Istanbul, Turkey;1. Department of Statistical Sciences, University of Toronto, Toronto, Ontario M5S 3G3, Canada;2. Quantitative Engineering and Development, TD Securities, Toronto, Ontario M5K 1A2, Canada;3. Department of Statistics and Actuarial Science, University of Iowa, Iowa City, IA 52242, USA |
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| Abstract: | This paper considers the impact of the 2008 short selling bans on the cross-market dynamics of stock indices across a wide range of countries. We measure the transmission of shocks between markets using a modified version of the spillover index of Diebold and Yilmaz (2009). The results show that the transmission of shocks between countries which did impose short sale bans was reduced and transmissions from countries with bans to countries without bans were also generally lower. In contrast, short sale bans did not provide protection from shocks emanating from countries which did not impose bans, as shocks from non-banning markets tended to have an increased impact on other markets during periods where bans were in place. Overall, the evidence supports the redirection of volatility in the system affecting the relationships between the groups of markets with bans and those without. |
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| Keywords: | Short selling Financial crisis Cross-market relationships |
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