The 2011 European short sale ban on financial stocks: a cure or a curse? : [version 31 july 2013]
- Did the August 2011 European short sale bans on financial stocks accomplish their goals? In order to answer this question, we use stock options’ implied volatility skews to proxy for investors’ risk aversion. We find that on ban announcement day, risk aversion levels rose for all stocks but more so for the banned financial stocks. The banned stocks’ volatility skews remained elevated during the ban but dropped for the other unbanned stocks. We show that it is the imposition of the ban itself that led to the increase in risk aversion rather than other causes such as information flow, options trading volumes, or stock specific factors. Substitution effects were minimal, as banned stocks’ put trading volumes and put-call ratios declined during the ban. We argue that although the ban succeeded in curbing further selling pressure on financial stocks by redirecting trading activity towards index options, this result came at the cost of increased risk aversion and some degree of market failure.
Author: | Luiz Félix, Roman KräusslORCiDGND, Philip Stork |
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URN: | urn:nbn:de:hebis:30:3-324949 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2013,17 |
Series (Serial Number): | CFS working paper series (2013, 17) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2013 |
Year of first Publication: | 2013 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2013/12/16 |
Tag: | ban; financial stocks; implied volatility skew; risk aversion; short-selling |
Issue: | version 31 july 2013 |
Page Number: | 43 |
HeBIS-PPN: | 349965781 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |