On Wednesday 29 April, the World Federation of Exchanges (WFE), the global industry group for exchanges and CCPs, published an academic review on the practice of short-selling and short-selling bans.
Following a previous WFE statement on the negative effects of short-selling bans, the paper entitled, ‘What does academic research say about short-selling bans?’, found that they are disruptive for the efficient functioning of markets, as they reduce market liquidity, increase price inefficiency, and impede effective price discovery.
Moreover, the paper makes additional remarks regarding negative spillover effects of short-selling bans on other markets, referring to the options market in particular, where investors may consider to operate in venues where the ban is not present, as in OTC markets, and therefore altering the normal functioning of the market. The paper concludes that even if bans could contribute to price declines in sell-off periods, overall the bans deteriorate the efficiency of the market.
The full press release, including links to the paper as well as the WFE’s recent statement, can be found here