In news that’s sure to make A-Train happy; or at least allow him to say “I told you so”:

SSRN-Shackling Short Sellers: The 2008 Shorting Ban
by Ekkehart Boehmer, Charles Jones, Xiaoyan Zhang

In September 2008, the U.S. Securities and Exchange Commission (SEC) surprised the investment community by adopting an emergency order that temporarily banned most short sales in nearly 1,000 financial stocks. In this paper, we study changes in stock prices, the rate of short sales, the aggressiveness of short sellers, and various liquidity measures before, during, and after the shorting ban. We match banned stocks to a control group of non-banned stocks in order to identify these effects. Shorting activity drops by about 65%. Stocks subject to the ban suffered a severe degradation in market quality, as measured by spreads, price impacts, and intraday volatility. Prices of stocks subject to the ban increase sharply, but it is difficult to assign this effect to the ban because the Troubled Asset Relief Program (TARP) and other programs were announced the same day. In fact, we find no positive share price effects in stocks that were added to the ban list later, suggesting that the ban may not have provided much of an artificial price boost.

The abstract and a link to the full paper are available on the SSRN website:

It’s an interesting paper, at least for us armchair economists (although I have to admit, some of the math is a bit above my head), but it’s certainly worth examining what happened last fall along with efforts to stem the bloodflow, in order to determine what, if any, measures should be taken in the future should we find ourselves in the same situation.