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.