Monday, October 3, 2011

NY Fed Finds Short Selling Not Cause Of Stock Market Declines

From the Federal Reserve Bank of New York "Market Declines: Is Banning Short Selling the Solution?" by Robert Battalio, Hamid Mehran, and Paul Schultz, September 2011 Staff Report Number 518:
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.
Read the complete research report here.

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