TY - JOUR

T1 - Short-selling ban and cross-sectoral contagion

T2 - Evidence from the UK

AU - Mohamad, A.

AU - Jaafar, Aziz

AU - Goddard, J.A.

PY - 2015/12/1

Y1 - 2015/12/1

N2 - The UK's Financial Services Authority introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator's stated objectives were to protect market quality, stabilise the market for financial-sector stocks, and prevent cross-sectoral contagion. We analyse the price, market quality and contagion effects following the imposition of the short-selling ban, and its removal in January 2009. We report evidence consistent with a short-lived overpricing (underpricing) effect immediately after the ban was imposed (lifted). There is evidence of deterioration in market quality while the ban was in force. There is evidence of cross-sectoral contagion from the financial sector to the telecommunication sector immediately before the imposition of the ban, but there is no contagion for seven other non-financial sectors. There is no evidence of contagion while the ban was in force. In terms of preventing cross-sectoral contagion, the ban may be seen as a successful governance mechanism in the regulator's toolbox.

AB - The UK's Financial Services Authority introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator's stated objectives were to protect market quality, stabilise the market for financial-sector stocks, and prevent cross-sectoral contagion. We analyse the price, market quality and contagion effects following the imposition of the short-selling ban, and its removal in January 2009. We report evidence consistent with a short-lived overpricing (underpricing) effect immediately after the ban was imposed (lifted). There is evidence of deterioration in market quality while the ban was in force. There is evidence of cross-sectoral contagion from the financial sector to the telecommunication sector immediately before the imposition of the ban, but there is no contagion for seven other non-financial sectors. There is no evidence of contagion while the ban was in force. In terms of preventing cross-sectoral contagion, the ban may be seen as a successful governance mechanism in the regulator's toolbox.

U2 - 10.1057/jam.2015.32

DO - 10.1057/jam.2015.32

M3 - Article

VL - 16

SP - 484

EP - 501

JO - Journal of Asset Management

JF - Journal of Asset Management

SN - 1470-8272

IS - 7

ER -