The cross market effects of short sale restrictions

Mardi Dungey, Michael D. McKenzie, Abdullah Yalama*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

This paper considers the impact of the 2008 short selling bans on the cross-market dynamics of stock indices across a wide range of countries. We measure the transmission of shocks between markets using a modified version of the spillover index of Diebold and Yilmaz (2009). The results show that the transmission of shocks between countries which did impose short sale bans was reduced and transmissions from countries with bans to countries without bans were also generally lower. In contrast, short sale bans did not provide protection from shocks emanating from countries which did not impose bans, as shocks from non-banning markets tended to have an increased impact on other markets during periods where bans were in place. Overall, the evidence supports the redirection of volatility in the system affecting the relationships between the groups of markets with bans and those without.

Original languageEnglish
Pages (from-to)53-71
Number of pages19
JournalThe North American Journal of Economics and Finance: a journal of financial economics studies
Volume26
DOIs
Publication statusPublished - Dec 2013

Keywords

  • Cross-market relationships
  • Financial crisis
  • Short selling

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