Travail de recherche/Working paper
| Résumé : | Short selling plays a crucial role for price discovery and liquidity purposes yetnational governing authorities decided to ban short selling in periods of extreme pricemovements, on the grounds that short selling can exacerbate price downturns. Whereasmost of the literature analyses the average relation between short selling and pricechanges, our study focuses on the relation that occurs during extreme events, usinga new paradigm that stems from the literature on tail correlations. For the largestEuropean and US banks, as well as European insurers, we uncover a very strong relationwhen both variables are in their tails. In normal times, no negative association is found,which favours the view that short sellers act as price stabilizers. But during turmoil,short selling relates with excessive price drops that can put the market under seriousstress. |
