Abstract
We examine short selling of equity exchange traded funds (ETFs) using the 2008 short-sale ban. Contrasting the previously documented contractions in bearish strategies during the ban, we find a significant increase in short sales of the largest, most liquid ETF, the S&P 500 Spider. We offer evidence suggesting this upsurge was driven primarily by investors circumventing the ban. We show that the ban’s detrimental effect on stock liquidity was around 30% less severe for the Spider’s constituents. Our results suggest that ETF shorts can substitute for short sales of individual stocks, thereby alleviating short-sale constraints’ adverse effect on liquidity.
| Original language | English |
|---|---|
| Pages (from-to) | 923-956 |
| Number of pages | 34 |
| Journal | Journal of Financial and Quantitative Analysis |
| Volume | 57 |
| Issue number | 3 |
| Early online date | 15 Mar 2021 |
| DOIs | |
| Publication status | Published - May 2022 |
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This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 17 Partnerships for the Goals
Keywords
- ETFs
- financial crisis
- liquidity
- regulation
- short-sale ban
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