Short selling constraints and stock returns volatility: empirical evidence from the German stock market
Zusammenfassung
In this paper we focus on the impact of short selling restrictions on stock returns volatility. To assess potential effects econometrically we apply two distinct versions of an asymmetric Markov-switching GARCH model to the recent short selling bans on stocks of financial enterprises in Germany. We find empirical evidence that the financial crisis is accompanied by an increase in volatility persistence and that this effect is particularly pronounced for those stocks that are subject to short selling constraints. We interpret this finding as evidence of a destabilizing impact of short selling constraints on stock returns volatility.
Schlüsselwörter
Financial market regulation; short selling constraints; stock returns volatility; Markov-switching GARCH models