The COVID-19 Pandemic, Short Sale Ban, and Market Efficiency: Empirical Evidence from the European Equity Markets

Seungho Lee* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study looks at the inefficiency of stock indices of France, Italy, and Spain around their financial regulatory authorities’ short sale ban during the COVID-19 pandemic crisis. The empirical analysis of this study provides evidence of price predictability of the basis of futures contract prior to the short-sale restriction. Moreover, the results show a significant underpricing in futures contracts of FTSE MIB and IBEX35 indices while the two months of short sale banned period. These findings suggest that prohibiting short selling during the market downturn might undermine the stock markets' efficiency and generate arbitrage opportunities for speculative investors.
Original languageEnglish
JournalJournal of Asset Management
Publication statusAccepted/In press - 13 Dec 2021
Event2021 Cross Country Perspectives in Finance Symposium for JIFMIM - Online
Duration: 24 Jun 202126 Sep 2021

Keywords

  • market efficiency
  • speculation
  • COVID-19
  • futures arbitrage

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