A study of the short selling ban on FIBS

Abstract

The following study investigates how the short selling ban affected the respective countries, that is, France, Italy, Belgium and Spain and whether the required response was really achieved and reflected into the market. Although some argue that the short selling ban was really needed for the market to get back on its feet, others argue that short selling is a tool that improves market efficiency and banning such trading strategy might lead to detrimental effects on the market. Therefore, the purpose of this study is to show whether the short selling ban had a positive or negative effect, both in the short-term and long-term perspective, on the financial markets and whether short selling is really a manipulative tool for inside traders. Consequently, the study of this topic seeks to clear the ideas on whether the short selling ban has had a permanent impact on the financial markets and whether it really had an effect on the FIBS. I believe that this study can lead to clear the question on whether short selling is an effective tool and whether it really drives the stock prices down when the financial markets are going through bad moments. I intend to achieve this by looking at the market data and stock returns of various stocks, including banned in the FIBS financial markets and non-banned financial stocks from non-FIBS before, during and after the short-selling ban was enacted in August 2011. Hopefully, when looking at such results I would be able to conclude whether the short selling ban really had any impact on the FIBS financial markets. Furthermore, I am aware that my research could be affected by other market conditions, which might be unrelated to the short-selling ban especially when my market data that will be collected is during a financial recession.