Thursday, August 14, 2008

SEC short selling rule made little impact: studies | Deals | Regulatory News | Reuters

Do you remember in July when regulators imposed short sale restrictions on 19 financial stocks due to fears of the stocks collapsing and thus leading to a market-wide panic? Well the constraints were recently lifted and now Arturo Bris finds that the regulations did little good and even hurt efficiency.

SEC short selling rule made little impact: studies | Deals | Regulatory News | Reuters: "study from Arturo Bris, a finance professor at IMD business school in Lausanne, Switzerland, found that, even controlling for short selling, market efficiency had deteriorated more for the 19 stocks affected by the rule than for other comparable U.S. financial stocks."

Bris finds, among other things, that while the 19 stocks fell more than their matches, they did not have significantly worse accounting performances, they did not have significantly different short selling activity prior to the rule, and that liquidity and informational efficiency both fell seemingly as a result of the regulations.

From the article:
"from the pre‐EO period to the post‐EO period, relative quoted spreads for G19 stocks have increased from 18 percent to 48 percent, but they have increased only from 11 percent to 29 percent for comparable US financial stocks."
"...significant volatility increases: open‐to‐close and close‐to‐close volatility increase 158 percent and 188 respectively. Trade price range increases 4.37 percent in the post‐EO period."


The WSJ also reports on this story here.

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