Did the Short Selling Ban Work?

The ban on short selling financial stocks is supposed to be lifted on Thursday.  Whether or not it is removed remains to be seen. 

The real question is, did the ban on selling short financials work?

We really do not know since drawing a definitive conclusion would require a control group of financial stocks that had not been shorted.

However, the ban did not stop the continued underperformance of financial stocks relative to the broad market.

click to enlarge

From Monday September 22 through Tuesday October 7, the Financial Select Sector SPDR, (XLF), declined 25.2% while the S&P 500 Depository Receipts, aka SPDR, (SPY), fell 17.8%.  Thus, the XLF lagged the SPDR by 7.4%, underperforming the broad market.

Disclosure: None

Comments

[apppro:]

How can it work when some stocks and people, are still allowed to short their brains out with impunity. The 2 examples you used are a prime example – these 2 ETF’s still can be shorted and have been gangshorted up the ying-yang. The XLF especially! Hey, all true negative shorts needed to do was keep shorting the XLF like crazy while buying puts on anything else they wanted.
Individual stocks? We don’t need no stincken’ individual stocks!

We really have really given ourselves a big headache and the tail is truly waging the dog.

DRILL.. DRILL.. DRILL.
BUILD.. BUILD..BUILD.

Only way out.

2008 Oct 08 06:57 AM

[bbowen7:]

Perhaps someday there will be a good story about the traders who figured out how to play this distortion, and how much they made from the rest of us. This really is a time for us amateurs (e.g. long term investors) to sit back and marvel at the market.

2008 Oct 08 05:38 PM