Sat, Aug 30, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EDHEC-Risk Institute denounces short selling bans

Friday, August 12, 2011
Opalesque Industry Update - EDHEC-Risk Institute condemns the August 11 decisions by the financial market authorities in Belgium, France, Italy and Spain to impose or extend short-selling bans in the wake of renewed market volatility.

These hasty decisions are not only devoid of theoretical basis, but also fly in the face of empirical evidence. Academic studies, including work by EDHEC-Risk Institute researchers, have documented the positive contribution of short-sellers to market efficiency and shown that constraining short sales significantly reduces market quality – by reducing liquidity and increasing volatility – and can have unintended spillover effects.

In a series of research articles, EDHEC Business School Professor Ekkehart Boehmer and his co-authors have studied short selling activities, looking at the type of information possessed by short-sellers1, at the impact between short selling activities and abnormal returns2, and at the link between short-selling and the price discovery process3. They established that short sellers are important contributors to efficient stock prices, that short interest contains valuable information for the market, that information is impounded faster and more efficiently into prices when short sellers are more active and that short sellers change their trading around extreme return events in a way that aids price discovery.

Professor Boehmer and co-authors, and EDHEC Business School Professor Abraham Lioui have also looked at the consequences of the previous short selling bans imposed in the USA, UK and continental Europe in 2008. The study led by Professor Boehmer concluded that stocks subject to the US ban suffered a severe degradation in market quality, as measured by spreads and price impacts (i.e. liquidity), and intraday volatility. The most recent study4 by Professor Lioui focused on the impact of the bans on leading market and financial indices in the US, France, the UK and Germany and found that these led to a systematic increase in the volatility of market indices and had an even stronger impact on financial indices. None of the studies found indication that short-selling bans reduced downward pressure in a significant manner.

Against this backdrop, EDHEC-Risk Institute denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis-à-vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis.

About EDHEC-Risk Institute
EDHEC-Risk Institute is part of EDHEC Business School, one of Europe’s leading business schools and a member of the select group of academic institutions worldwide to have earned the triple crown of international accreditations (AACSB, EQUIS, Association of MBAs). Established in 2001, EDHEC-Risk Institute has become the premier European centre for financial research and its applications to the industry. In partnership with large financial institutions, its team of 66 permanent professors, engineers and support staff implements six research programmes and fourteen research chairs and major strategic research projects focusing on asset allocation and risk management in the traditional and alternative investment universes. The results of the research programmes and chairs are disseminated through the three EDHEC-Risk Institute locations in London, Nice and Singapore.

EDHEC-Risk Institute validates the academic quality of its output through publications in leading scholarly journals, implements a multifaceted communications policy to inform investors and asset managers on state-of-the-art concepts and techniques, and forms business partnerships to launch innovative products. Its executive education arm helps professionals to upgrade their skills with advanced risk and investment management seminars and degree courses, including the EDHEC-Risk Institute PhD in Finance. Corporate website: www.edhec-risk.com

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Study shows what resonates with investors: 'Unwavering', 'passionate' beats 'committed', 'dedicated' and more surprises[more]

    Komfie Manalo, Opalesque Asia: A new study by Pershing Square, a unit of BNY Mellon company, showed that an effective value proposition strengthens audience connections and fosters growth, yet many advisors have had little objective guidance in formulating such statements until now. In the

  2. Comment – Why you should avoid the hottest hedge fund hands, Swedroe attacks Hussman over risk management, relative value strategy[more]

    Why you should avoid the hottest hedge fund hands FromCNBC/Yahoo.com: Investors who don't have money with Pershing Square Capital Management are likely salivating at the hedge fund's industry-leading 26 percent return from January through July. But investing with Bill Ackman and other to

  3. Hedge fund assets decline in July - eVestment[more]

    Bailey McCann, Opalesque New York: Total assets in hedge funds declined in July and dropped 0.49%, marking the industry's second monthly asset decline in 2014, according to the latest asset flows data from eVestment. Despite the asset decline, total industry AUM remained above the $3 trillion

  4. AIMA makes 'the case for hedge funds'[more]

    Bailey McCann, Opalesque New York: The Alternative Investment Management Association (AIMA), the global hedge fund industry body,

  5. Managed futures' global diversification is important in next phase of economic recovery[more]

    Komfie Manalo, Opalesque Asia: The global diversification provided by managed futures may prove to be extremely valuable as the markets enter the next phase of the economic recovery, said Campbell & Company, a pioneer in absolute return invest