Back to the futures: When short selling is banned

George J. Jiang; Yoshiki Shimizu; Cuyler Strong

doi:10.1016/j.finmar.2022.100735

Back to the futures: When short selling is banned

George J. Jiang, Yoshiki Shimizu, Cuyler Strong

Accounting & Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban in the United States. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Although SSFs trading in the U.S. still lags other countries, our findings project an increasingly important role for them in the U.S. financial market.

Original language	English (US)
Article number	100735
Journal	Journal of Financial Markets
Volume	61
DOIs	https://doi.org/10.1016/j.finmar.2022.100735
State	Published - Nov 2022

Bibliographical note

Funding Information:
We wish to thank Tarun Chordia (the editor), an anonymous referee, Ruwan Adikaram, Ben Blau, Tyler Brough, Don Chance, Jared DeLisle, Peter Dixon, Phil Dybvig, Amy Edwards, Louis Gagnon, Todd Griffith, Hong Liu, Andrew Karolyi, Bill Megginson, Katsumasa Nishide, Valeriya Posylnaya, Ken Roskelley, Ryuta Sakemoto, Danjue Shang, Randall Skalberg, Jason Smith, Raluca Stan, Jason Turkiela, Robert Van Ness, Qiguang Wang, Yajun Wang, Ryan Whitby, Ryuichi Yamamoto, and participants at the 2018 Magnolia Finance Conference at the Mississippi State University, the 2019 China International Conference in Finance, the 2019 Nippon Finance Association Annual Meetings, the Institute of Financial Studies, University of Minnesota Duluth, Utah State University, the Wharton Research Data Services, and Washington State University for helpful comments and suggestions. We are grateful to Louis Gagnon for sharing with us his data on historical single-stock futures listings.

Publisher Copyright:
© 2022 Elsevier B.V.

Keywords

Financial crisis
Market quality
Price discovery
Short-selling ban
Single-stock futures

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.finmar.2022.100735

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title = "Back to the futures: When short selling is banned",

abstract = "We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban in the United States. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Although SSFs trading in the U.S. still lags other countries, our findings project an increasingly important role for them in the U.S. financial market.",

keywords = "Financial crisis, Market quality, Price discovery, Short-selling ban, Single-stock futures",

author = "Jiang, {George J.} and Yoshiki Shimizu and Cuyler Strong",

note = "Funding Information: We wish to thank Tarun Chordia (the editor), an anonymous referee, Ruwan Adikaram, Ben Blau, Tyler Brough, Don Chance, Jared DeLisle, Peter Dixon, Phil Dybvig, Amy Edwards, Louis Gagnon, Todd Griffith, Hong Liu, Andrew Karolyi, Bill Megginson, Katsumasa Nishide, Valeriya Posylnaya, Ken Roskelley, Ryuta Sakemoto, Danjue Shang, Randall Skalberg, Jason Smith, Raluca Stan, Jason Turkiela, Robert Van Ness, Qiguang Wang, Yajun Wang, Ryan Whitby, Ryuichi Yamamoto, and participants at the 2018 Magnolia Finance Conference at the Mississippi State University, the 2019 China International Conference in Finance, the 2019 Nippon Finance Association Annual Meetings, the Institute of Financial Studies, University of Minnesota Duluth, Utah State University, the Wharton Research Data Services, and Washington State University for helpful comments and suggestions. We are grateful to Louis Gagnon for sharing with us his data on historical single-stock futures listings. Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",

year = "2022",

month = nov,

doi = "10.1016/j.finmar.2022.100735",

language = "English (US)",

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AU - Strong, Cuyler

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N2 - We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban in the United States. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Although SSFs trading in the U.S. still lags other countries, our findings project an increasingly important role for them in the U.S. financial market.

AB - We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban in the United States. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Although SSFs trading in the U.S. still lags other countries, our findings project an increasingly important role for them in the U.S. financial market.

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KW - Price discovery

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ER -

Back to the futures: When short selling is banned

Abstract

Bibliographical note

Keywords

UN SDGs

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