What happens when short ban expires?
Posted
Oct 08 2008, 04:17 PM
by
Kim Peterson
Rating:
The ban on shorting stocks is ending tonight. Will it unleash the fury of millions of short sellers, or will the market just hobble along in what these days is becoming a normal state of chaos? It's anyone's guess. Some experts think we won't see much impact immediately because investors are very cautious right now.
The ban was originally supposed to cover only financial stocks, although it was expanded to include such curious picks as CVS Caremark and General Motors. The idea behind the ban was that it would keep people from manipulating stocks in these panicked, reactionary times.
Investing consultant Donald Luskin thinks the ban will unleash a wave of short selling. "The shorts will pick some stock to attack," he told USA Today. Others said that lifting the ban will improve the markets because investors can go back to business as usual.
Did the ban even work? William Ackman of the Pershing Square hedge fund says no. The ban "did more to destroy investor confidence than anything," he told BusinessWeek. The Dow Jones industrials had their two biggest daily point drops after the ban was in place, he added.
One equities analyst said the ban probably hurt more than it helped.
"The idea behind the ban was to calm everybody down and the immediate response was throwing chaos into the system," he told BusinessWeek. "The hedge funds that made up a good chunk of the market volume are pulling back because they can't short."
Related reading:
Shorts returning to the game
Damaging the market by curbing short selling
Britain bans short selling
The top three reasons to hate short sellers
Is it cheating to ban short selling?
