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


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
Issue number2
Publication statusPublished - 2012

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