This paper investigates the impact of short sale bans on the market microstructure of equity markets by focusing on three major stock market characteristics: (How) did the ban affect stock liquidity, (how) did the ban influence price efficiency, and did the regulators manage to stabilize stock prices by imposing short sale bans?
On March 12, 2020, the EURO STOXX 50, the major European stock index declined by more than 12% - the largest loss ever reported on a single day since index inception in 1986. Other major stock indices around the globe experienced a similar drop. The Covid-19 crisis was about to hit and there was great uncertainty among investors, reflected by very volatile stock markets. The corresponding volatility index VSTOXX had its peak on March 16, 2020, with an implied volatility of 86%.
To stabilize capital markets and restore the confidence of investors during volatile times, regulators can make use of temporary bans on short sales, i.e., restricting investors in their ability to profit from declining stock prices. This was the case in numerous countries during the financial crisis in 2007-09.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Short Selling (Bans)
- The Idea of Short Selling
- Evolution of Short Selling (Bans)
- European Short Sale Bans in 2020
- Literature Overview
- Stock Liquidity
- Variables and Data
- Methodology
- Empirical Results
- Robustness Check
- Effects of the Ban Lift
- Country-by-Country Analysis
- Price Efficiency
- Stock Prices
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This master's thesis aims to investigate the impact of short sale bans on the market microstructure of European equity markets. The study focuses on the effects of these bans on stock liquidity, price efficiency, and stock prices. The research utilizes data from the Covid-19 crisis in 2020, when several European countries implemented short sale bans as a response to highly volatile financial markets.
- Impact of short sale bans on market liquidity
- Effects of short sale bans on price efficiency
- Influence of short sale bans on stock prices
- Comparison of the findings with previous studies on short sale bans
- Analysis of the impact of short sale bans during market downturns
Zusammenfassung der Kapitel (Chapter Summaries)
The introduction provides an overview of the research topic and outlines the objectives and scope of the study. Chapter 2 examines the concept of short selling, its evolution, and the implementation of short sale bans in Europe in 2020. Chapter 3 reviews relevant literature on the impact of short sale bans on market microstructure. Chapter 4 delves into the analysis of stock liquidity, exploring variables, data, methodology, empirical results, robustness checks, and country-by-country analysis. Chapter 5 focuses on price efficiency and its relationship with short sale bans. Chapter 6 investigates the impact of short sale bans on stock prices.
Schlüsselwörter (Keywords)
The key terms and concepts explored in this research include short sale bans, market microstructure, stock liquidity, price efficiency, stock prices, European equity markets, Covid-19 crisis, empirical analysis, and matching algorithms.
Frequently Asked Questions
What is the main objective of this master's thesis?
The thesis investigates how temporary short sale bans affected the market microstructure—specifically liquidity, price efficiency, and stock prices—of European equity markets during the 2020 Covid-19 crisis.
Why do regulators impose short sale bans during financial crises?
Regulators use short sale bans to stabilize capital markets, prevent excessive price declines, and restore investor confidence during periods of high volatility.
How did the Covid-19 crisis impact European stock indices in March 2020?
Major indices like the EURO STOXX 50 experienced record-breaking single-day losses exceeding 12%, accompanied by extreme volatility reflected in the VSTOXX index peaking at 86%.
What are the key microstructural variables analyzed in the study?
The study focuses on stock liquidity (bid-ask spreads, depth), price efficiency (how fast information is reflected in prices), and overall stock price stability.
Does the research include a country-specific analysis?
Yes, the thesis includes a country-by-country analysis to see if the impact of the short sale bans varied across different European jurisdictions.
What happens to the market once a short sale ban is lifted?
The thesis examines the "Effects of the Ban Lift" to determine if liquidity and efficiency return to normal levels or if there are lasting consequences on market structure.
- Arbeit zitieren
- Moritz Wiebke (Autor:in), 2020, Short Sale Bans and their Impact on the Microstructure of Equity Markets, München, GRIN Verlag, https://www.grin.com/document/1000263
