Separate pieces of research conducted by Credit Suisse and global agency broker, Instinet, have found that short sell restrictions introduced in August have failed to halt a slide in the European financial stocks concerned, and have in some instances increased volatility in those stocks.
Credit Suisse said in a note published Monday: "While short selling bans represent a tempting and politically expedient option, closer inspection demonstrates that in fact they do more harm than good". Alison Crosthwait, managing director, global market structure research at Instinet, said: "The data suggests that most short sellers are very short-term traders who are not looking for big moves and that, in fact, the very big price moves we’ve seen in these stocks simply represent the fundamental view on these stocks. If anything, the impact of short selling on those stocks is negative overall."
The banned financial stocks now trade 10.4 per cent lower than the day the ban came into effect, versus a 4.4 per cent decline in non-banned financial stocks. Liquidity in banned stocks, as measured by median turnover, also declined by 43 per cent when measured against the median turnover from January 3 to August 11. This compared with a 22 per cent decline in non-banned financial stocks over the same periods.
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