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| Title: | A Study of Market-Wide Short-Selling Restrictions |
| Authors: | Charoenrook, Anchada
Daouk, Hazem |
| Authors (Email): | Daouk, Hazem (hd35@cornell.edu) |
| Keywords: | Short-sale constraints
Stock returns
Cost of capital
International finance |
| JEL Codes: | G15
G12 |
| Issue Date: | 2009-06-16 |
| Series/Report no.: | Working Paper
WP 2009-21 |
| Abstract: | This paper contributes empirical evidence to the on-going debate on short sales. Our
examination of how market-wide short-sale restrictions affect aggregate market returns
focuses on two main questions: What is the effect of short-sale restrictions on skewness, volatility, the probability of market crashes, and liquidity? What is the effect on the market expected return or cost of capital? We report new data on the history of short-selling and put
option trading regulations and practices from 111 countries, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that when short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. When countries start to permit short-selling, aggregate stock price increases,
implying lower a cost of capital. There is no evidence that short-sale restrictions affect either the level of skewness of returns or the probability of a market crash. Collectively, our empirical evidence suggests that allowing short-selling enhances market quality. |
| URI: | http://purl.umn.edu/51180 |
| Institution/Association: | Cornell University>Department of Applied Economics and Management>Working Papers |
| Total Pages: | 43 |
| Collections: | Working Papers
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Files in This Item:
| File |
Description |
Size | Format |
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| WP Daouk 2009-21 Charoenrook & Daouk.pdf | | 750Kb | PDF | View/Open |
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