Short-selling ban did not help Spanish stocks in Covid-19 turmoil: CNMV
Spain was among the European markets having implemented prohibited short-selling practices on local stocks by asset managers between March and May 2020. These restrictions aimed at preserving financial stability and investor confidence at a time the Covid-19 crisis deeply hit markets. But a study, carried out by Ramiro Losada and Albert Martínez Pastor from the Spanish regulator's research and statistics department, rather highlights the inefficiency of the ban. The pair compared variables related to the returns, volatility and liquidity measures of the shares listed on the stock exchanges that make up the Ibex 35 stock exchange index in Spain and those that are part of the German Dax 30 over the period. Germany was one of the countries that did not ban short-selling practices.
“From both descriptive and econometric analyses, it can be deduced that the securities affected by the ban experienced a greater increase in bid-ask spreads, which then persisted to some extent. However, the analysis performed has not found any significant evidence of effects attributable to the ban on other relevant variables such as trading volumes, prices, volatility, market depth or credit spreads of the issuers,” concludes the study.
Liquidity of Spanish stocks during the ban, measured through bid-ask spreads, was damaged and pre-crisis valuations were only reached once the ban had been lifted. The authors point out that German equities had recovered faster than their Spanish peers.
Read the full study (in Spanish) here.