Market impacts of the 2020 short selling bans |
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| Authors: | Alessandro Spolaore Caroline Le Moign |
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| Affiliation: | 1. Economics, Financial Stability and Risk Department, European Securities and Markets Authority (ESMA), Università Cattolica del Sacro Cuore;2. Economics, Financial Stability and Risk Department, European Securities and Markets Authority (ESMA), Paris 1 Université, Centre d'Économie de la Sorbonne |
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| Abstract: | At the height of the COVID-19 related market stress in March 2020, six European countries implemented market-wide short selling bans. Based on a difference-in-difference approach using regulatory data, our estimation finds that the bans are associated with a deterioration in liquidity and trading volumes, and a decrease in volatility, without evidence of price impact. Remarkably, the negative impact persisted after the bans' lift. Liquidity deterioration appears stronger for liquid shares- large-cap, highly fragmented stocks, and stocks with listed derivatives. Sectoral effects are noticed for the stocks most affected by the market stress. Finally, no displacement effect was observed. |
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