Do option markets undo restrictions on short sales? Evidence from the 2008 short-sale ban

B.D. Grundy, B. Lim, P. Verwijmeren

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

The effectiveness of any sanction depends on the costs of avoiding its restrictions. We examine whether bearish option strategies were substitutes for short sales during the September 2008 short-sale ban. We find a significant diminution in option volumes and a significant increase in option bid-ask spreads for banned stock relative to unbanned stock during the ban period. Apparent violations of the put-call parity bound became significantly more frequent for banned stocks during the ban period. We conclude that the ban acted as an effective restriction on trading in options. © 2012 Elsevier B.V.
Original languageEnglish
Pages (from-to)331-348
JournalJournal of Financial Economics
Volume106
Issue number2
DOIs
Publication statusPublished - 2012

Fingerprint

Dive into the research topics of 'Do option markets undo restrictions on short sales? Evidence from the 2008 short-sale ban'. Together they form a unique fingerprint.

Cite this