Effect of the ban on short selling on market prices and volatility

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Journal Article

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Helmes, U., Henker, J., & Henker, T. (2016). Effect of the ban on short selling on market prices and volatility. Accounting and Finance.

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© 2016 AFAANZ




We examine the effects of the short-selling ban, imposed by Australian regulators in the wake of the global financial crisis, on the trading of financial stocks. Our findings argue against commonly stated reasons for imposing short-sale bans. We find no evidence that short-sale restrictions provide support for stock prices or that they reduce volatility. Moreover, stocks subject to the short-selling ban suffered a severe degradation in market quality. Controlling for the adverse effects of the financial crisis on markets, we show that short-selling restrictions increase intraday volatility, reduce trading activity and increase bid–ask spreads.

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This document has been peer reviewed.