Did the 2008 Short-Sale Ban Prevent a Market Crash?

Journal of Applied Finance, Spring/Summer 2011, Volume 21, Issue 1, pp. 62-77

Posted: 8 Aug 2012

See all articles by Van Thuan Nguyen

Van Thuan Nguyen

affiliation not provided to SSRN

Alex P. Tang

Morgan State University

Date Written: 2011

Abstract

This paper empirically examines the efficacy of the 2008 short-sale ban. We find that the firms covered by the ban experience positive abnormal returns at the ban initiation. When the ban expires, small banks, medium/large banks, and brokerage firms continue to experience positive abnormal returns, while other firms experience negative abnormal returns. The volatilities at the individual stock level and market level are higher in the ban period and remain high in the post-ban period. The frequency of extreme negative returns is smaller and the frequency of extreme positive returns is larger in the ban period relative to the pre-ban period. The extreme negative returns continue to decline and the extreme positive returns remain high in the post-ban period. Our overall evidence indicates that the ban has been successful at what it was intended to achieve, though we cannot rule out the possibility that liquidity and efficiency have deteriorated as a result of the ban.

Keywords: Short sale ban, volatility, ban period, post ban period

Suggested Citation

Nguyen, Van Thuan and Tang, Alex P., Did the 2008 Short-Sale Ban Prevent a Market Crash? (2011). Journal of Applied Finance, Spring/Summer 2011, Volume 21, Issue 1, pp. 62-77, Available at SSRN: https://ssrn.com/abstract=2126711

Van Thuan Nguyen (Contact Author)

affiliation not provided to SSRN

Alex P. Tang

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

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