Jamie Powell
Financial Times, 18 March 2020
In the past seven days, various bans on short-selling — the practice of betting on a stock falling in price — have come into effect across Italy, France, Belgium, Spain and Greece. The reason? In Italian regulator Consob’s own words: “these measures were made necessary by the strong turbulences triggered in the last days by the Covid-19 pandemic”.
But there’s a small wrinkle here: it doesn’t work.
The academic studies on this are endless, but it’s worth highlighting a few just in case you’re not aware. Here’s one from 2018, for example, that found short-selling bans on financial stocks actually increased the probability of both default and volatility in the targeted companies. Another 2013 working paper found the same.
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