The Causal Effects of Short-Selling Bans: Evidence from Eligibility Thresholds

51 Pages Posted: 25 Apr 2015 Last revised: 22 Jul 2017

See all articles by Alan D. Crane

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business

Kevin Crotty

Rice University - Jesse H. Jones Graduate School of Business

Sebastien Michenaud

Kellstadt Graduate School of Business

Patricia L. Naranjo

Rice University

Date Written: July 20, 2017

Abstract

We identify the causal effects of short-selling bans on stock prices using regression discontinuity (RD). We exploit three threshold-based rules that determine a stock's short-selling eligibility on the Hong Kong Stock Exchange. Short-selling bans affect short-selling volume at all thresholds. Despite this, bans do not affect price levels. Stock returns, volatility, and crash risk are not different for banned vs. unrestricted stocks when appropriate counterfactual stocks are used to measure a ban's effects. Our findings suggest that short-selling bans are not as costly as previously argued, but are ineffective at reducing volatility or buttressing prices.

Keywords: Short Selling, Regression Discontinuity, Financial Market Regulation

JEL Classification: G12, G15, G18

Suggested Citation

Crane, Alan D. and Crotty, Kevin and Michenaud, Sebastien and Naranjo, Patricia L., The Causal Effects of Short-Selling Bans: Evidence from Eligibility Thresholds (July 20, 2017). Available at SSRN: https://ssrn.com/abstract=2598142 or http://dx.doi.org/10.2139/ssrn.2598142

Alan D. Crane (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Kevin Crotty

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 Main Street
Houston, TX 77005-1892
United States

Sebastien Michenaud

Kellstadt Graduate School of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States
(312)362-5001 (Phone)

HOME PAGE: http://www.sebastienmichenaud.com

Patricia L. Naranjo

Rice University ( email )

6100 South Main Street
McNair Hall - Room 343
Houston, TX 77005-1892
United States
7133485386 (Phone)

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