S.E.C. Short-Sale Ban Was Pretty Much Useless

That's the conclusion from the preliminary results of a new paper by Ekkehart Boehmer of Texas A&M, Charles Jones of Columbia, and Cornell's Xiaoyan Zhang. They studied the impact of the short-sale ban which lasted between mid-September to early October and found that:

the start of the shorting ban is associated with a sharp increase in share prices for affected stocks, consistent with most models of shorting constraints. Shorting activity drops by about 85%. Stocks subject to the ban suffered a severe degradation in market quality, as measured by spreads, price impacts, and intraday volatility.

The following chart shows the daily price changes for banned and non-banned stocks, click here for larger:

Comments

[Did U Think...:]

Wow what a shock. You mean the gov't does not control the economy or the markets after all? Gee I think I will go get me degree in economics now.

Bottom line: nothing the gov't does will have any lasting effect except make problems worse and take longer to correct themselves. Let the free markets do their work and, oh yeah, abolish the fed.

2008 Dec 22 11:48 AM

[headlocal:]

The summary and graph shown are true, and from the cited authors, but they do NOT come from the cited paper,
(www2.gsb.columbia.edu/...)

Instead they come from a slightly earlier preliminary/working paper from the same authors, "SHACKLING SHORT SELLERS: THE 2008 SHORTING BAN" , available at
www2.gsb.columbia.edu/...

ZJ's text quote comes from the abstract, and the chart is Figure 2 in this cite.

***Just to save anyone the time of chasing down the details***

Apparently I'm not the only one who works with multiple pdf's open at the same time. But, while chasing down the correct paper, I incidentally found a far more interesting paper in Charles Jones' recent working papers, so I get almost instant-karma rewards.

Merry Christmas, Happy Hanukkah, Joyeaux Kwanza, fecund Saturnalia,
...enjoy something!!

2008 Dec 24 10:38 PM