The knee-jerk reaction by regulators to restrict short selling in the midst of the stock markets September nose dive might have done more harm than good, according to academic studies conducted in December.
We found that short selling was not a factor in driving down share prices, and the ban had no effect whatsoever, said Andrew Baker, chief executive of the Alternative Investment Management Association Ltd. in London.
The AIMA research, which was conducted by the Cass Business School at City University London, studied the equity markets in 17 countries where short-selling bans were introduced in some form.
In the United States, the Securities and Exchange Commission banned short-selling shares of nearly 1,000 companies from Sept. 15 through Oct. 8.
The SECs ban, which originally was set to run for 30 days, was lifted after President Bush signed a $700 billion bailout package into law.
In the United Kingdom, the ban, which remains in place, prevents short selling of the shares of 34 commercial banks and organizations holding banking licenses.
On the extreme end, regulators in Australia have moved to ban all short selling.