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Short Selling: The Impact of SEC Rule 201 of 2010
Author(s) -
Jain Chinmay,
Jain Pankaj,
McInish Thomas H.
Publication year - 2012
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2011.00320.x
Subject(s) - market liquidity , crash , economics , monetary economics , quality (philosophy) , financial crisis , rule of law , business , financial economics , macroeconomics , law , computer science , philosophy , epistemology , programming language , politics , political science
Despite its sizeable compliance costs, we are unable to document any clear benefits of SEC Rule 201 in ensuring fair valuations and price stability, promoting higher liquidity and execution quality, or preventing a sudden flash crash or prolonged market crises. Our daily and intraday analysis of data both before and after Rule 201 finds that short sellers are naturally more active before the occurrence of negative returns, not after significant price declines. Our simulation results show that Rule 201 further curtails short selling during normal periods, but is not binding on short sellers during the volatile period of the 2008 financial crisis.