In both the subprime crisis and the eurozone crisis, regulators imposed bans on short sales mainly aimed at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators’ intentions, financial institutions whose stocks were banned experienced greater increases in the probability of default and volatility than unbanned ones. Increases were larger for more vulnerable financial institutions. To take into account the endogeneity of short sales bans, we match banned financial institutions with unbanned ones with similar sizes and levels of riskiness and instrument the 2011 ban decisions with regulators’ propensity to impose a ban in the 2008 crisis.
Short-Selling Bans and Bank Stability / Beber, Alessandro; Fabbri, Daniela; Pagano, Marco; Simonelli, Saverio. - In: THE REVIEW OF CORPORATE FINANCE STUDIES. - ISSN 2046-9128. - 10:1(2021), pp. 158-187. [10.1093/rcfs/cfaa022]
Short-Selling Bans and Bank Stability
Marco Pagano
Penultimo
;Saverio SimonelliUltimo
2021
Abstract
In both the subprime crisis and the eurozone crisis, regulators imposed bans on short sales mainly aimed at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators’ intentions, financial institutions whose stocks were banned experienced greater increases in the probability of default and volatility than unbanned ones. Increases were larger for more vulnerable financial institutions. To take into account the endogeneity of short sales bans, we match banned financial institutions with unbanned ones with similar sizes and levels of riskiness and instrument the 2011 ban decisions with regulators’ propensity to impose a ban in the 2008 crisis.File | Dimensione | Formato | |
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