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Short-selling ban and cross-sectoral contagion: Evidence from the UK

Mohamad, A. and Jaafar, A. and Goddard, J. (2015) Short-selling ban and cross-sectoral contagion: Evidence from the UK. Journal of Asset Management, 16 (7). pp. 484-501. DOI: 10.1057/jam.2015.32

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Abstract

The UK's Financial Services Authority introduced a ban on the short-selling of specified financial-sector stocks in September 2008. The regulator's stated objectives were to protect market quality, stabilise the market for financial-sector stocks, and prevent cross-sectoral contagion. We analyse the price, market quality and contagion effects following the imposition of the short-selling ban, and its removal in January 2009. We report evidence consistent with a short-lived overpricing (underpricing) effect immediately after the ban was imposed (lifted). There is evidence of deterioration in market quality while the ban was in force. There is evidence of cross-sectoral contagion from the financial sector to the telecommunication sector immediately before the imposition of the ban, but there is no contagion for seven other non-financial sectors. There is no evidence of contagion while the ban was in force. In terms of preventing cross-sectoral contagion, the ban may be seen as a successful governance mechanism in the regulator's toolbox.

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 17 Mar 2016 03:46
Last Modified: 17 Mar 2016 03:46
ISSN: 1470-8272
URI: http://e.bangor.ac.uk/id/eprint/6373
Identification Number: DOI: 10.1057/jam.2015.32
Publisher: Palgrave Macmillan
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