Nice piece from the New York Fed by Robert Battalio, Hamid Mehran, and Paul Schultz titled Market Declines: What Is Accomplished by Banning Short-Selling?:
In 2008, U.S. regulators banned the short-selling of financial stocks, fearing that the practice was helping to drive the steep drop in stock prices during the crisis. However, a new look at the effects of such restrictions challenges the notion that short sales exacerbate market downturns in this way. The 2008 ban on short sales failed to slow the decline in the price of financial stocks; in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted. Similarly, following the downgrade of the U.S. sovereign credit rating in 2011—another notable period of market stress—stocks subject to short-selling restrictions performed worse than stocks free of such restraints.
…
Our analysis of the empirical evidence from the United States suggests that the bans had little impact on stock prices. Even with the bans in place, prices continued to fall. At the same time, the bans lowered market liquidity and increased trading costs. On the latter point, we estimate that the ban raised total trading costs in the U.S. equities options market by $500 million in the period between September 18 and October 8, 2008.
…
The equity markets provide telling evidence of the costs imposed by short-sale bans. In their multivariate analysis, Boehmer, Jones, and Zhang (2009) find that the 2008 short-sale ban in the United States was associated with a 32 basis point increase, on average, in relative effective bid-ask spreads for the banned stocks. For the 404 financial stocks that were subject to the ban for its duration—September 18 through October 8, 2008—the increase in spreads represents an increase in liquidity costs of more than $600 million.
David Berman comments in the Globe:
All of which suggests that short-sellers are far from being enemies of normal market activity – and banning their activities is unlikely to turn bear markets into bull markets, or even provide much-needed stability when stocks are falling .
One commenter on the Globe piece writes:
There were more sellers than buyers then, so obviously stocks went down. Short sellers would have made it even worse. How dumb does one have to be to miss that obvious fact
.
Quite right, short sellers will indeed increase the speed of loss … until the market reaches it clearing price. Short sellers assist the market to reach the clearing price faster.
Sorry this is so late, folks! But better late than never!
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0960 % | 2,402.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0960 % | 3,594.5 |
| Floater | 3.03 % | 3.07 % | 58,189 | 19.48 | 3 | -0.0960 % | 2,594.5 |
| OpRet | 4.76 % | 3.26 % | 28,595 | 0.81 | 5 | 0.2075 % | 2,550.2 |
| SplitShare | 5.50 % | 5.08 % | 72,159 | 4.63 | 3 | -0.1734 % | 2,791.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2075 % | 2,331.9 |
| Perpetual-Premium | 5.29 % | 3.59 % | 94,106 | 0.37 | 28 | -0.0132 % | 2,277.9 |
| Perpetual-Discount | 4.92 % | 4.95 % | 100,241 | 15.49 | 3 | 0.5419 % | 2,540.2 |
| FixedReset | 5.00 % | 3.02 % | 176,347 | 3.97 | 71 | 0.0114 % | 2,428.1 |
| Deemed-Retractible | 4.94 % | 3.46 % | 121,199 | 0.72 | 46 | 0.0144 % | 2,369.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.C | Deemed-Retractible | 1.01 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-09-29 Maturity Price : 25.50 Evaluated at bid price : 26.04 Bid-YTW : -10.17 % |
| HSB.PR.D | Deemed-Retractible | 1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-09-29 Maturity Price : 25.75 Evaluated at bid price : 26.31 Bid-YTW : -11.23 % |
| ELF.PR.G | Perpetual-Discount | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-08-30 Maturity Price : 23.46 Evaluated at bid price : 23.74 Bid-YTW : 5.06 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.I | Deemed-Retractible | 68,997 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.86 Bid-YTW : 5.09 % |
| BNS.PR.N | Deemed-Retractible | 59,778 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-01-29 Maturity Price : 26.00 Evaluated at bid price : 26.45 Bid-YTW : 1.85 % |
| SLF.PR.A | Deemed-Retractible | 56,510 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.05 Bid-YTW : 5.24 % |
| TD.PR.Y | FixedReset | 51,306 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.44 Bid-YTW : 3.15 % |
| CM.PR.L | FixedReset | 45,358 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.85 Bid-YTW : 2.29 % |
| TD.PR.A | FixedReset | 40,816 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.81 Bid-YTW : 2.96 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| VNR.PR.A | FixedReset | Quote: 26.00 – 26.46 Spot Rate : 0.4600 Average : 0.3518 YTW SCENARIO |
| HSB.PR.E | FixedReset | Quote: 26.93 – 27.15 Spot Rate : 0.2200 Average : 0.1559 YTW SCENARIO |
| BAM.PR.K | Floater | Quote: 17.23 – 17.57 Spot Rate : 0.3400 Average : 0.2801 YTW SCENARIO |
| POW.PR.A | Perpetual-Premium | Quote: 25.48 – 25.74 Spot Rate : 0.2600 Average : 0.2010 YTW SCENARIO |
| PWF.PR.R | Perpetual-Premium | Quote: 26.50 – 26.70 Spot Rate : 0.2000 Average : 0.1421 YTW SCENARIO |
| BNS.PR.N | Deemed-Retractible | Quote: 26.45 – 26.60 Spot Rate : 0.1500 Average : 0.0923 YTW SCENARIO |