Sat, Apr 29, 2017
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. Opalesque Exclusive: Ex-Man manager combines sustainable investing with AI/ML[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Dr. Richard Bateson, quant fund manager and physicist, has recently

  2. Other Voices: "Winner-take-all" dynamics and hedge fund investing[more]

    A growing stream of thinking in microeconomics is the concept of "winner-take-all" dynamics. The idea seems simple. A combination of networking economics and classic economies of scale creates situations where there are just a few dominant firms or economic agents who are able to capture significant

  3. Investing - How Chipotle's comeback attracted big data robots and value investors alike[more]

    From Forbes.com: When William Ackman's ailing hedge fund Pershing Square Capital Management bet $1 billion on shares in Chipotle Mexican Grill beginning in July 2016, the stakes couldn't have been higher. Pershing Square was reeling from what would eventually be a near $4 billion loss in drugmaker V

  4. Gondor Capital sees challenges ahead for financial markets as two hedge funds post strong gains in Q1[more]

    Komfie Manalo, Opalesque Asia: Vincent Au, portfolio manager of New York-based hedge fund firm Gondor Capital Management believes that the remaining of the year would be challenging for the financial markets even as his two hedge funds maintain

  5. Service Providers - Colemore launches fee tracking service for limited partners[more]

    Following Colmore's successful launch in January 2017, the firm has announced the launch of FAIR.. FAIR is designed to help private equity investors independently validate fees and incentives charged by underlying managers, saving time and providing an extra level of comfort. There is a glob