Sunday, January 30, 2011

Following the Short Seller: Do Short Selling Bans Prevent Herding During Financial Crises?

By Pierre L. Siklos, Martin T. Bohl and Arne Klein

Abstract: In the literature on short selling restrictions, their impact on pricing efficiency liquidity and trading costs is mostly investigated. Surprisingly little is known about the effects of short selling restrictions on institutional investors' herding behavior. If short selling bans hinder institutional investors from herding during stock market downturns, regulators have a successful tool to prevent further stock price declines. However, our empirical findings for six stock markets do not support this hypothesis.

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