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Journal of Financial Economics Vol. 109 No. 1 2013

Worldwide reach of short selling regulations

Archana Jain1; Pankaj K. Jain2; Thomas H. McInish2; Michael D. McKenzie3

1 Rochester Institute of Technology · 2 University of Memphis · 3 The University of Sydney

Abstract

We characterize legality and incidence of short selling in a worldwide, multimarket framework. Home country short selling restrictions curtail home market stock borrowing by 45% and reduce short selling of the country's American Depository Receipts (ADRs) by 68% due to regulatory reach. Also, the 2008 US ban on short selling of financial firms reduced borrowing in foreign locations. These findings are robust to controls for option availability, enforcement, returns, firm size, trading volume, dividends, ADR level, volatility, days-to-cover, and industry sector. Further, we show that investor conduct resulting from adherence to professional standards is a more powerful mechanism of regulatory reach than intergovernment cooperation.

DOI
10.1016/j.jfineco.2013.02.012
Volume
109
Issue
1
Pages
177-197
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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