The effects of the 2008 short-sales ban

Laurence Copeland (Cardiff Business School, Cardiff, UK)
Joseph T. Elliott (Cardiff Business School, Cardiff, UK)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Publication date: 11 November 2013



The paper aims to investigate the effectiveness of the ban on short trading of stocks on the London Stock Exchange, introduced in September 2008 in the immediate aftermath of the collapse of Lehman Brothers. In particular, the paper investigates how far the ban succeeded in achieving the objectives set out by the regulator, the Financial Services Authority (FSA).


The approach involves comparing the returns on a portfolio of stocks covered by the short-sales ban with a portfolio of financial stocks exempt from the ban as a control group.


The paper presents evidence to show the effects to the ban to have been mostly confined to a large first-day return. Beyond that, there is some evidence that volatility was diverted from stocks covered by the ban to those for which short-sales were still permitted. Investors seem to have been wary of buying banned stocks when good news arrived, presumably out of fear that they may be overpriced.

Research limitations/implications

All event studies are subject to the curse of the counterfactual: what would have happened if the event had not occurred? The problem is especially acute here, however, because the background was the most turbulent in modern economic and financial history.

Practical implications

The paper shows the limited value of short-sales bans over anything beyond the very short-term.


This paper helps to inform regulatory decision-making in financial crises.



JEL classification – F3, G1  Earlier versions of the paper benefitted from comments by participants in the Cardiff Business School Finance Workshop.


Copeland, L. and T. Elliott, J. (2013), "The effects of the 2008 short-sales ban", Journal of Financial Regulation and Compliance, Vol. 21 No. 4, pp. 334-352.

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