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Short‐sell moratorium effects on regional bank performance

Michael Devaney (Department of Economics and Finance, Southeast Missouri State University, Cape Girardeau, Missouri, USA)
William L. Weber (Department of Economics and Finance, Southeast Missouri State University, Cape Girardeau, Missouri, USA)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 24 May 2013

276

Abstract

Purpose

The purpose of this paper is to investigate the effects of the 2008 SEC short‐sell moratorium on regional bank risk and return. The paper also examines the decline in “failures to deliver” securities in the wake of SEC short‐sell moratorium.

Design/methodology/approach

In total, six regional bank portfolios are derived and the beta coefficients from a CAPM model are estimated using the integrated generalized autoregressive conditional heteroskedasticity (IGARCH) method accounting for the short‐sell moratorium. Data on 110 regional banks in six US regions from January 2002 to December 30, 2011 are used to estimate the model.

Findings

The ban on naked short selling and the SEC short‐sell moratorium significantly increased individual bank risk for a majority of banks in six geographic regions, but also increased return in three of three regions. There was also reduced naked short selling as failures to deliver securities declined sharply after the September 2008 moratorium took effect.

Originality/value

Regional banks have generally not achieved the size needed to be deemed “too big to fail” by policy‐makers. Thus, policy changes such as the SEC short‐sell moratorium might be expected to have larger effects on regional banks than on larger banks, which might be shielded from the policy change by having achieved “too big to fail” status. The authors' results are consistent with research that has shown that short‐sell restrictions increase risk by reducing liquidity and trading volume.

Keywords

Citation

Devaney, M. and Weber, W.L. (2013), "Short‐sell moratorium effects on regional bank performance", Journal of Financial Economic Policy, Vol. 5 No. 2, pp. 92-110. https://doi.org/10.1108/17576381311329652

Publisher

:

Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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