Pierre Siklos Publications
Short-selling Bans and Institutional Investors' Herding Behaviour: Evidence from the Global Financial Crisis
The authors examine bans on selected financial stocks in six countries during the 2008-2009 global financial crisis, which provided a setting to analyze the impact of short-sale restrictions. In particular, the authors focussed on short-sale constraints’ effect on institutional investors’ trading behaviour and the possibility of generating herding behaviour. They conclude that the empirical evidence shows that short-selling restrictions exhibit either no influence on herding formation or induce adverse herding.
During the recent global financial crisis, regulators, politicians and high-profile media coverage blamed short sellers for amplifying stock market downturns. Regulatory authorities in a number of countries imposed short-sale constraints aimed at preventing excessive stock market declines.
The effects of the global financial crisis continue to be felt across a spectrum of issues five years later — the short-term outlook for global growth; the need for international cooperation; the strengthening of international financial regulation; financing sustainable development; and leadership in a turbulent world.
This paper argues that credibility and trust in any new international regulatory framework must first begin at home with a determination for fiscal and monetary policies to work in harmony. This includes cooperation, if not coordination, of regulatory and supervisory functions to ensure that macroprudential policies effectively complement domestic monetary policy and provide an additional tool to implement a sound macroeconomic framework that will soften the blow from the next financial crisis.
While the Bretton Woods system of fixed exchange rates ended almost 40 years ago, remarkably, policy makers continue to be fascinated by the policy strategy that underpinned its arrangements. This paper considers the relevance of the Bretton Woods system, exploring the challenges that must be met in attempting to reform the present international monetary system and euro area policies.
On the surface, the global push to implement measures to stem future systemic crises like the one that first gripped the global economy in 2007 has made considerable progress. In a letter released on April 20, 2012, Bank of Canada Governor and Chair of the Financial Stability Board (FSB) Mark Carney summarizes the progress made since the November 2011 Cannes summit. The letter emphasizes the fact that agreement has been reached on general principles to strengthen the resilience of the global financial system, to properly regulate and supervise systemically important financial institutions, and develop the necessary oversight of the shadow banking system. Nevertheless, the continuing crisis in Europe, the recurring worries over whether existing financial “firewalls” are large enough to forestall another global financial crisis and the weakness of the global recovery, suggest that, almost five years since the start of the “global” financial crisis, a safer and stronger global financial system has not yet been achieved.
History, in the form of economic crises, does indeed repeat itself. But there are wide variations across the experiences of individual countries and across time, and the response of policy makers often determines the severity of the recessions that usually accompany financial crises of all types. This policy brief provides a brief history of short selling and its critics, and considers the question of whether a “herd-like mentality” exists during financial crises.
The heady days of the London and Pittsburgh summits of 2009 are gone. The spectre of the advanced world entering a “lost decade” is a real prospect. Governments are withdrawing stimulus as quickly as it was introduced. Mismanagement of the euro zone has largely eroded confidence to deal with the crisis that threatens to tear apart the single currency area. We are no nearer to a resolution of the euro crisis.
These 21 CIGI commentaries analyze the policy issues and debates under discussion in 2010 that are still relevant to the ongoing G20 agenda under the French presidency and the G20’s aspirations for the future.
When Good Intentions are Not Enough: Lessons of Past Cooperation Attempts for the G20 Stability Framework
At the Pittsburgh Summit, the G20 announced a new “Framework for Strong, Sustainable and Balanced Growth.” Within this Framework, leaders pledged to pursue responsible fiscal policies, prevent destabilizing credit and asset price cycles, promote more balanced external accounts, undertake structural reform to increase their potential growth rates and, where needed, improve social safety nets. But cooperation is easier said than done. The Pittsburgh summit may be remembered as the high water mark of G20 cooperation on global imbalances, unless officials draw lessons from past attempts at international economic reform.