Short sale restrictions : The Swedish perspective

University essay from Högskolan i Jönköping/IHH, Företagsekonomi; Högskolan i Jönköping/IHH, Företagsekonomi; Högskolan i Jönköping/IHH, Företagsekonomi

Author: Fredrik Bodestedt; William Andersson; Carl Hjortsjö; [2009]

Keywords: short sale; shorting; finance; investement; short selling;

Abstract:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Background:

 

Problem:

 

Purpose:

 

Method:

 

Conclusion:

Based on our findings we do not advocate short sale regulations to

be introduced on the Swedish financial market. Neither does our

analysis indicate that the market performance is significantly affected

by shorting, nor does restrictions work as intended which we have

seen in other countries during the fall of 2008.

The analysis have been drawn from four cornerstones; previous

research, actions of other countries’, a statistical analysis and

interview findings. We have examined and compiled different

strategies for restricting short sales around the world as well as

conducted a cross-correlation analysis to investigate if share price is

related to stock loan. Furthermore we have interviewed a

professional investor and a middle manager at the Swedish Financial

Supervisory Board to obtain experts’ views on the subject.

With background of other countries’ actions, the purpose of this

report is to investigate why, if at all, short sale regulations should be

introduced on the Swedish financial market.

Is there a correlation between the number of shorted shares and the

change in overall and individual stock price? What actions have been

taken by countries in Europe, Asia and the United States regarding

short selling during the fall of 2008 and what is SFSB’s attitude

towards the subject? Are there any benefits for the Swedish financial

market from shorting regulations?

In times of financial crisis short selling is often quickly blamed for

price volatility and media broadcasts pleads for prohibitions and

restrictions. Extensive research, however, cannot find any empirical

evidence that shorting is affecting markets negatively; often it is the

other way around. Sweden has been relatively liberal when it comes

to shorting restrictions and even though share lending has increased

since the start of the year, no actions have been taken by the

Swedish Financial Supervisory Board.

 

 

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