Fed Reserve NY Staff Report Questions SS Bans

A recently published study the staff at the Federal Reserve-New York ( “Market Declines: Is Banning Short Selling the Solution” ) finds that the bans on short selling filed to lift prices, as the regulators intended, and instead increased liquidity costs while imposing other adverse effects on market participants.

“Our cross-sectional tests suggest that the decline in stock prices was not significantly driven or amplified by short selling. Short selling does not appear to be the root cause of recent stock market declines. Furthermore, banning short selling does not appear to prevent stock prices from falling when firm-specific or economy-wide economic fundamentals are weak, and may impose high costs on market participants.”

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