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Short sales restrictions and market quality: Evidence from Korea

Eom, Yunsung / Hahn, Jaehoon / Sohn, Wook

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Abstract

We examine changes in volatility and market quality around the shorting ban during the 2008 global financial crisis in a unique policy environment in Korea. Using intraday quotes and transaction data, we find no evidence that the shorting ban increased volatility or worsened liquidity. While the ban was lifted only for nonfinancial stocks, the patterns of change in volatility and market quality were similar across nonfinancial and financial stocks, suggesting that the changes in volatility and market quality around the shorting ban and its removal were likely to have been driven by changes in overall market conditions rather than the shorting ban itself.

Issue Date
ACCEPT
Publisher
Elsevier BV
DOI
10.1016/j.jbef.2021.100504
Journal Title
Journal of Behavioral and Experimental Finance
ISSN
2214-6350
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