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Short sale bans

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Running head: Short-Sale Ban 1
Short Sale Ban
Institution
Date

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Short-Sale ban 2
Introduction
There have been various discussions about the results caused by the short sale bans as a
regulatory tool especially in the times of financial drawbacks which included the intended and
unintended results. This measure was put in place in order to stabilize the market. It is said that
short selling contributed speculation and price manipulation, devaluating the precious assets
causing self perpetuating price spirals. This discouraged the engagement of people in illegal
market manipulation.
On the hand, short sale is said to be used by investors to point out their opinions on the
prices thus liquidity of in the market. Both the regulators and investors have to pay keen
attention to the effects posed by this tool, in reference to the 2008 ban caused both intended and
unintended impacts as elaborated below.
Intended impacts of 2008 short-sale ban
The first result was that of short-selling speculation which was effective in reducing the
short positions. Harris et al (2013) displays a clear distinction on the percentages taken by
banned and non-banned stocks which recorded the decrease in the value of short sale interest by
4% implying the reduction of short positions in the stipulated firms and also the reduction of
collateral short interest in the market.
Also this improved the confidence of the investors. This triggered the perceptions of the
investors of their future aggregate cash flows or riskiness and their level of willingness to go as
per the stipulated prices in the market. The ban caused some inflation in the market due to the
fact that some of the investors were not willing to risk.

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Running head: Short-Sale Ban 1 Short –Sale Ban Institution Date Short-Sale ban 2 Introduction There have been various discussions about the results caused by the short sale bans as a regulatory tool especially in the times of financial drawbacks which included the intended and unintended results. This measure was put in place in order to stabilize the market. It is said that short selling contributed speculation and price manipulation, devaluating the precious assets causing self perpetuating price spirals. This discouraged the engagement of people in illegal market manipulation. On the hand, short sale is said to be used by investors to point out their opinions on the prices thus liquidity of in the market. Both the regulators and investors have to pay keen attention to the effects posed by this tool, in reference to the 2008 ban caused both intended and unintended impacts as elaborated below. Intended impacts of 2008 short-sale ban The first result was that of short-selling speculation which was effective in reducing the short positions. Harris et al (2013) displays a clear distinction on the percentages taken by banned and non-banned stocks which recorded the decrease in the value of short –sale interest by 4% implying the reduction of short positions in the stipulated firms and also the reduction of collateral short interest in the market. Also this improved the confidence of the investors. This triggered the perceptions of the investors of their future aggregat ...
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