QRFE Seminar with Prof Robert Kosowski (Imperial College London)

The Double-Edged Sword of the 2020 European Short-Selling Bans

Abstract

We study the effects of short-selling bans on liquidity and prices through the lens of a model that incorporates a regulator aiming at preventing a significant price decline. Empirically, we evaluate our model’s predictions by exploiting the introduction of short-sales restrictions in some but not all European countries during the COVID[1]19 pandemic, while measuring the share of informed stockholders with institutional ownership. Consistent with our model, bans were detrimental to market liquidity and failed to support average returns, but were effective in limiting large price drawdowns in countries that implemented short-selling bans, especially for stocks with low institutional ownership.

About the speaker

Robert Kosowski Professor of Finance at Imperial College Business School, Imperial College London and a research fellow at the Centre for Economic Policy Research (CEPR). Since May 2021 Robert has been the Head of the Department of Finance at Imperial College Business School. Link to CV.

Robert Kosowski's research interests include asset management, risk management, machine learning, hedge funds, mutual funds, performance measurement, business cycles, derivative trading strategies and economic forecasting.