The Double-Edged Sword of Short-Selling Bans

Battle Count: 77

Highly relevant for quantitative traders and market makers who rely on short-selling for hedging, arbitrage, and price discovery. The findings on bid-ask spread widening (13 bps average, up to 29 bps for high institutional ownership stocks) directly impact transaction cost models. The left-tail support finding (310 bps reduction in maximum drawdown) is relevant for risk management and tail hedging strategies. The institutional ownership heterogeneity provides actionable information for stock selection during regulatory events. However, the paper is primarily policy-oriented rather than strategy-focused.

The theoretical model is relatively simple (single-period, binary payoff) but requires careful Bayesian updating. The empirical implementation involves standard DiD regressions with fixed effects, IV estimation, and placebo tests - all well-established econometric techniques. The main complexity lies in data collection (multiple sources: Datastream, Bloomberg, ECB) and the careful construction of treatment/control groups across 17 European markets. No proprietary algorithms or ML models are involved.

The paper uses publicly available data from Datastream and Bloomberg. The theoretical model is fully specified with proofs in the appendix. However, Bloomberg institutional ownership data and Datastream stock data require commercial subscriptions. The empirical methodology (DiD, IV) is standard and well-documented. No code or repository is mentioned.