The COVID-19 Pandemic, Short Sale Ban, and Market Efficiency: Empirical Evidence from the European Equity Markets

Abstract

This study looks at the inefficiency of stock indices of France, Italy, and Spain around their financial regulatory authorities’ short-sale ban during the COVID-19 pandemic crisis. The empirical analysis of this study provides evidence of price predictability of the basis of futures contract prior to the short-sale restriction. Moreover, the results show a significant underpricing in futures contracts of FTSE MIB and IBEX35 indices while the two months of short-sale banned period. These findings suggest that prohibiting short selling during the market downturn might undermine the stock markets’ efficiency and generate arbitrage opportunities for speculative investors.

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This is a post-peer-review, pre-copyedit version of an article published in Journal of Asset Management.

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Identifiers

DOI

https://doi.org/10.1057/s41260-021-00254-w

Repository URI

https://hdl.handle.net/2164/18983