Publication

This paper argues that short sellers are routinely blamed for destabilizing stock markets. In response, regulators periodically impose short-sale constraints aimed at preventing excessive stock market declines. The paper examines bans on selected financial stocks in six countries during the 2008-2009 global financial crisis to see what impact short-sale restrictions have on feedback trading. It finds that such restrictions increase positive feedback trading during periods of high volatility and do not improve financial stability.