CIGI Papers No. 18
by: Pierre Siklos, Martin T. Bohl, and Arne C. Klein
Published: May 9, 2013
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Publication Description

Format: Trade PB; Trimsize: 11X8.5X0.125; Pages: 20
Published by: The Centre for International Governance Innovation

Surprisingly, little is known about the effects of short-sale constraints on herd behaviour. Since institutional investors have come to dominate mature stock markets and rely extensively on short sales, constraining these traders may influence the asset pricing process. The literature on short-selling restrictions focusses mainly on a ban's impact on market efficiency, liquidity and overpricing. 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.

 

About the Author

Pierre Siklos is a CIGI senior fellow and director of the Viessmann European Research Centre at Wilfrid Laurier University.

Series: CIGI Papers Series

CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.