@techreport{049b829aea0e4d68893103d5ad54e3a1,
title = "Short Selling Equity Exchange Traded Funds and its Effect on Stock Market Liquidity",
abstract = "We examine short selling of equity exchange traded funds (ETFs) using the September 2008 short-sale ban. Contrasting the previously-documented contractions in other bearish strategies, we demonstrate that during the ban the short sales of the largest and the most liquid ETF, the S&P 500 Spider, significantly increased. We offer evidence that it was driven primarily by short sellers circumnavigating the ban. We also document a concurrent increase in the supply of ETF shares suggesting that they can be created to accommodate short-sales. Additionally, we show that the detrimental effect of regulatory short-sale constraints on stock liquidity was up to 10% less severe for the constituents of the Spider. Our results suggest that short-sales of ETFs are a viable substitute for directional short-sales of individual stocks. They also highlight a novel channel through which ETFs can have a positive effect on the liquidity of its underlying securities.",
keywords = "exchange traded funds, regulatory arbitrage, financial crisis, SEC, ETF, short selling ban",
author = "Egle Karmaziene and Valeri Sokolovski",
note = "R&R at Journal of Financial and Quantitative Analysis",
year = "2019",
language = "English",
series = "Swedish House of Finance Research Paper Series",
publisher = "SSRN",
type = "WorkingPaper",
institution = "SSRN",
}