Short Selling Bans and Market Liquidity around the World: Evidence from the 2007-09 Crisis

2009 ◽  
Author(s):  
Marco Pagano ◽  
Alessandro Beber
Keyword(s):  
Short Selling ◽  
Market Liquidity ◽  
The World

Short Selling and Price Pressures in the Korean Stock Market

2015 ◽  
Vol 23 (2) ◽  
pp. 265-287
Author(s):  
Yeongseop Rhee ◽  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Short Selling ◽  
Market Liquidity ◽  
Dynamic Panel Model ◽  
Market Sentiment ◽  
Order Imbalance ◽  
Price Decline ◽  
Korean Stock Market

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

Regulatory overkill? Short-sales ban in Korea

2016 ◽  
Vol 12 (5) ◽  
pp. 673-699
Author(s):  
Jaemin Kim ◽  
Joon-Seok Kim ◽  
Sean Sehyun Yoo
Keyword(s):  
Stock Market ◽  
Price Discovery ◽  
Short Selling ◽  
Market Liquidity ◽  
Informational Efficiency ◽  
Short Sales ◽  
Discovery Process ◽  
Content Type ◽  
Stabilizing Effect ◽  
Price Discovery Process

Purpose The authors investigate the 2008-2009 short-sales ban in Korea, one of the most comprehensive and restrictive short-selling bans worldwide. The purpose of this paper is to examine: whether the ban stopped a destabilizing effect, if there was any, of short-selling activities; whether the ban improved or deteriorated the informational efficiency or the price discovery process of the stock market; and whether the ban had any impact on market liquidity. Design/methodology/approach Multiple regression; vector autoregression analysis; and generalized autoregressive conditional heteroskedasticity analysis. Findings The authors find no evidence that short-sales have a market-destabilizing effect and thus, restricting short-selling has a market-stabilizing effect. On the contrary, the short-selling ban is associated with an increase in return volatility and a deterioration of the price discovery process, particularly for the stocks without derivatives traded on them. The authors also find evidence of a liquidity decrease for short-sale intensive stocks. However, the evidence is inconclusive as to whether the market efficiency and liquidity changes are solely the result of the short-sales ban or the compound effects of both the ban and the concurrent progress of the financial crisis. Originality/value The literature does not provide a conclusive view on the effects of short-sales or restrictions thereof on the stock market. Also, the existing research on recent worldwide shorting bans often lack empirical scope (e.g. 32 stocks for UK; three weeks for USA). In contrast, the short-sales ban in the Korean stock market, one of the most comprehensive and restrictive short-selling bans worldwide, lasted for eight months for all the listed stocks and is still in effect for financial stocks. The authors find no evidence that short-sales have a market-destabilizing effect and thus, restricting short-selling has a market-stabilizing effect.

scholarly journals Liquidity of bitcoin – insights from Polish and global markets

2019 ◽  
Vol 81 (3) ◽  
pp. 167-183
Author(s):  
Katarzna Włosik
Keyword(s):  
Competitive Advantage ◽  
Home Bias ◽  
Terms Of Trade ◽  
Market Liquidity ◽  
Global Markets ◽  
Volume Distribution ◽  
Trade Volume ◽  
Local Markets ◽  
The World

Bitcoin can be exchanged for other cryptocurrencies as well as for fiat currencies on many different platforms. Nevertheless, its real convertibility may be limited by market liquidity. The main aim of this article is to characterize and compare big and small bitcoin markets in terms of liquidity. I examine four platforms with high trade volume: Kraken, Bitstamp, BitFlyer and BTCBOX, as well as small entities which enable bitcoin to be traded in Polish zloty: BitBay and BitMarket. I compare the number of trades and the time between trades on selected bitcoin markets, determine the volume distribution throughout the day and analyse the dynamics of Amihud’s illiquidity measure – ILLIQ. I find that an exchange which is among the global leaders in terms of trading bitcoin in a particular traditional currency can be considered a smaller market in terms of trade volume in another traditional currency. Moreover, the results imply that BitBay and BitMarket can be perceived as local markets. They are mainly used for trading in Polish zloty, and are illiquid in terms of trading in the remaining traditional currencies. Home bias, the fact that they offer a possibility of trading in a less popular currency (in comparison to the world reserve currencies), and that have their interface in Polish, may give these platforms a competitive advantage.

COVID-19, Government Policy Responses, and Stock Market Liquidity around the World

2020 ◽  
Author(s):  
Adam Zaremba ◽  
David Yechiam Aharon ◽  
Ender Demir ◽  
Renatas Kizys ◽  
Dariusz Zawadka
Keyword(s):  
Stock Market ◽  
Government Policy ◽  
Market Liquidity ◽  
Policy Responses ◽  
The World ◽  
Stock Market Liquidity

Corporate Governance, Legal System, and Stock Market Liquidity: Evidence Around the World

2012 ◽  
Vol 41 (6) ◽  
pp. 686-703 ◽  
Author(s):  
Kee H. Chung ◽  
Joon-Seok Kim ◽  
Kwangwoo Park ◽  
Taeyoon Sung
Keyword(s):  
Corporate Governance ◽  
Stock Market ◽  
Legal System ◽  
Market Liquidity ◽  
The World ◽  
Stock Market Liquidity

scholarly journals COVID-19, government policy responses, and stock market liquidity around the world: A note

2021 ◽  
Vol 56 ◽  
pp. 101359
Author(s):  
Adam Zaremba ◽  
David Y. Aharon ◽  
Ender Demir ◽  
Renatas Kizys ◽  
Dariusz Zawadka
Keyword(s):  
Stock Market ◽  
Government Policy ◽  
Market Liquidity ◽  
Policy Responses ◽  
The World ◽  
Stock Market Liquidity

Identifying Islamic alternatives to short selling in Iranian stock market and prioritizing them using TOPSIS

2015 ◽  
Vol 7 (2) ◽  
pp. 191-214 ◽  
Author(s):  
Maysam Ahmadvand ◽  
Hadi Khajezadeh Dezfuli ◽  
Mohamad Javad Sadehvand
Keyword(s):  
Stock Market ◽  
Field Method ◽  
Short Selling ◽  
Market Liquidity ◽  
Alternative Methods ◽  
Islamic Finance ◽  
Large Sample Size ◽  
Content Type ◽  
Expert Opinions ◽  
Ranking Criteria

Purpose – This paper aims to first explain short selling and its benefits and damages; then, using experts’ opinions and Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) method as well as based on the legal, financial and jurisprudential criteria adopted, evaluate and prioritize Islamic alternatives to short selling; and finally, introduce the most proper approach for implementing it in Iran’s stock market. Design/methodology/approach – The methods applied in the paper are as follows: Library method to collect the required data for developing the theoretical and jurisprudential foundations of the study, identifying the appropriate criteria for prioritizing; the alternative methods for short selling in the Islamic markets; and the field method to determine the level of significance of the ranking criteria and prioritize the alternative methods for short selling in the Islamic markets on the basis of such criteria. The alternative methods for short selling in Iranian stock market were identified and analyzed jurisprudentially and legally. Afterwards, these strategies were prioritized based on the (legislative, financial and jurisprudential) criteria which were adopted in the form of Delphi from the related literature, research and expert opinions by means of TOPSIS approach. The method with the highest ranking will be introduced as the alternative method for short selling. Findings – The paper suggests that among all Islamic alternatives to short selling, based on experts’ opinions and legal considerations, method of combining Murabaha and Wa’ad is the most proper strategy in Iranian stock market. Research limitations/implications – An important limitation we faced in this study was limited familiarity of Iran, capital market participants with Islamic finance concepts including Islamic alternatives to short selling. Therefore, designed questionnaire was sent only to participants who had experience in the field of Islamic finance that they were not more than 31 people. Of course, in this study, large sample size was not necessary because the questionnaire was completed by experts, and therefore, results were scientific and reliable. Originality/value – One of the transaction strategies which significantly contributes to the enhancement of market liquidity is short selling. However, this strategy is not applicable to the Islamic stock markets because of its contradictions with a number of Islamic laws. Therefore, Islamic financial researchers have attempted to design relevant legal mechanisms drawing on the Islamic contracts to make use of the merits of this transaction strategy. In addition to introducing short selling and its demerits for the stock market, the paper explored the alternative methods and proposed the most proper one for implementing in Iranian stock market.

Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid-19 Crisis

2020 ◽  
Vol 17 (3-4) ◽  
pp. 386-418 ◽  
Author(s):  
Gianfranco Siciliano ◽  
Marco Ventoruzzo
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Equity Market ◽  
Short Selling ◽  
Market Quality ◽  
Policy Goals ◽  
The World ◽  
European Stock Markets

During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors’ confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with non-banned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.

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