Short-selling ban and cross-sectoral contagion: evidence from the UK
The UK’s Financial Services Authority (FSA) introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator’s stated objectives were to protect market quality, stabilize the market for financial-sector stocks, and prevent cross-sectoral contagion. We ana...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English English English |
| Published: |
Palgrave MacMillan
2015
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/46052/ http://irep.iium.edu.my/46052/ http://irep.iium.edu.my/46052/ http://irep.iium.edu.my/46052/1/ShortSellingBanContagion_AOP.pdf http://irep.iium.edu.my/46052/4/ShortSellingBanContagion_JAM.pdf http://irep.iium.edu.my/46052/7/46052_short_selling_ban-Scopus.pdf |
| Summary: | The UK’s Financial Services Authority (FSA) introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator’s stated objectives were to protect market quality, stabilize the market for financial-sector stocks, and prevent cross-sectoral contagion. We analyse the price, market quality and contagion effects following the imposition of the short-selling ban, and its removal in January 2009. We report evidence consistent with a short-lived overpricing (underpricing) effect immediately after the ban was imposed (lifted). There is evidence of deterioration in market quality while the ban was in force. There is evidence of cross-sectoral contagion from the financial sector to the telecommunication sector immediately prior to the imposition of the ban, but there is no contagion for seven other non-financial sectors. There is no evidence of contagion while the ban was in force. In terms of preventing cross-sectoral contagion, the ban may be seen as a successful governance mechanism in the regulator’s toolbox. |
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