Acta Univ. Agric. Silvic. Mendelianae Brun. 2017, 65, 2017-2024

https://doi.org/10.11118/actaun201765062017
Published online 2017-12-07

How Did Short Sale Ban Affect German Capital Market Risk?

Dagmar Linnertová

Department of Finance, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic

The problem of short sale is a popular issue of stock trading and efficiency of pricing. Most regulatory authorities around the world adopted in the period 2007–2010 ad hoc bans on short selling. This paper provides an examination of an impact of the short sale regulation on the German capital market during crisis period 2008–2010. The purpose is to identify effects of the short sale regulation on level of systematic risk on German capital market and to investigate the discovery of stock prices of German blue chips at the period from May 2007 to April 2011 and three sub periods which demonstrate different regulatory approach to naked short sale regulation. The results suggest that short sale ban affects the level of systematic risk in the German market and prolongs a price reaction on new information. Further, short sale ban limits activities of investors with bearish view. After adoption of short sale ban the level of systematic risk increases and not only banned stocks are affected by the regulation. Finally, at the analyzed period the problem of negative information corporation in stock prices has arisen. Thereafter, the short sale ban is lifted the level of systematic risk decrease and there are not significant differences for banned and not banned stocks. Further, the price efficiency measured by autocorrelation also decreased after ban is lifted.

Funding

The support of the Masaryk University internal grant MUNI/A/1039/2016 is gratefully acknowledged.

References

17 live references