When market crashes happen, there is always some politician who blames “speculation” for the fall in share values. Specifically “short-sellers” are blamed. This is where stock is lent (for a fee) to someone, who then sells it hoping to buy it back later at a lower price, pocketing the difference.
By banning this process, governments hope to stop the markets falling so fast. However it doesn’t work.
It signals panic, causing long-only investors to sell out
It causes the unwinding of pairs trades (where you go long for example Barclays and Short RBS) – this means buying RBS and selling Barclays.
It forces buying of the bad stock, which often has to be paid for by sales elsewhere.
by removing a significant chunk of the market’s power to signal the correct price, volatility often increases.
Europeans often blame “anglo saxon capitalism” for their financial crises. This one, however can be laid squarely at the door of that stupid political vanity project, the single European currency. Banning short selling won’t change the end result: The suffering of the People of Southern Europe.
http://bracken.uk.com/wp-content/uploads/2017/07/logo-2.png00Malcolm Brackenhttp://bracken.uk.com/wp-content/uploads/2017/07/logo-2.pngMalcolm Bracken2011-08-12 07:06:002017-07-21 01:43:40The Lunatics are in Charge Again.