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![Page 1: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/1.jpg)
Short Selling Bans and Institutional Investors' Herding Behavior:
Evidence from the Global Financial Crisis Martin T. Bohla, Arne C. Kleina and Pierre L. Siklosb
a Department of Economics, Westphalian Wilhelminian University of Münster, Germany
b Department of Economics, Wilfrid Laurier University and Viessmann European Research Centre, Canada
![Page 2: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/2.jpg)
Testable Hypotheses
• Does herding become more relevant during a financial crisis? In other words, are regulators desired to displace SS during a crisis because herding is exacerbated during falling markets?– YES? Herding implies investors’ difference of
opinion is relatively small– NO? Divergences of opinion increase during a crisis.
Therefore, adverse herding is a possibility• SENTIMENT plays a role
• Is the evidence for/against herding similar across countries?
![Page 3: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/3.jpg)
Contribution to the literature
• Do short sales constraints (SSC) have a significant impact on herding behavior?
![Page 4: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/4.jpg)
Contribution to the literature
• Do short sales constraints (SSC) have a significant impact on herding behavior?
• The answer, in turn, entails important information for stock market regulators
![Page 5: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/5.jpg)
Contribution to the literature
• Do short sales constraints (SSC) have a significant impact on herding behavior?
• The answer, in turn, entails important information for stock market regulators
• and deepens insights into institutional investors’ trading behavior
![Page 6: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/6.jpg)
Markets under consideration
Setting and Data: Short Sale Constraints in
The United States• 07/15/2008 – 08/12/2008
Naked short sales in (18) selected stocks United Kingdom• 09/19/2008 - 01/16/2009
All economic short positions in (32) selected stocks Germany• 09/22/2008 – 01/31/2010
Naked short sales in (10) selected stocks
![Page 7: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/7.jpg)
Markets under consideration
France• 09/22/2008 – 01/31/2010
Short Sales in (12) selected stocks South Korea• 09/30/2008
All short sales• 06/01/2009
Lifted for non-financials
![Page 8: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/8.jpg)
Markets under consideration
Australia• 09/22/2008
Naked short sales• 11/19/2008
Lifted for non-financials being member of the S&P/ASX 200 and APRA-regulated business
• 05/24/2009Ban expires
![Page 9: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/9.jpg)
Markets under consideration
US UK GER FR ROK AUS
No. Stocksbanned
(N)
18 29 10 12 16 44
No. StockControl group
18 29 10 12 16 44
T 17 83 343 347 317 127
![Page 10: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/10.jpg)
Markets under consideration
• US & UK > 200%
• GER, FR, AUS > 100%
• ROK ≈ 90%
In 2007 (Gonnard (2008))
Institutional investors holdings
GDP
![Page 11: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/11.jpg)
Literature Review
• Miller (1977), Diamond and Verrecchia (1987)
• Short selling bans
![Page 12: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/12.jpg)
Miller (1977)
• Divergence of opinion
![Page 13: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/13.jpg)
Miller (1977)
• Divergence of opinion
• SSC deter pessimists from expressing their beliefs
![Page 14: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/14.jpg)
Miller (1977)
• Divergence of opinion
• SSC deter pessimists from expressing their beliefs
• therefore, market prices are build upon optimists’ valuation
![Page 15: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/15.jpg)
Miller (1977)
• Divergence of opinion
• SSC deter pessimists from expressing their beliefs
• therefore, market prices are build upon optimists’ valuation
Overvaluation
![Page 16: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/16.jpg)
Diamond and Verrecchia (1987)
SSC reduce informational efficiency:
new information is impounded into prices with a delay
![Page 17: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/17.jpg)
Diamond and Verrecchia (1987)
SSC reduce informational efficiency:
new information is impounded into prices with a delay
• this holds for both positive and negative news
![Page 18: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/18.jpg)
Diamond and Verrecchia (1987)
SSC reduce informational efficiency:
new information is impounded into prices with a delay
• this holds for both positive and negative news
• but the effect is stronger for negative information
![Page 19: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/19.jpg)
Crisis related Bans
Previous literature on the short selling bans reports strong evidence for deteriorations in market quality and
liquidity
• Bris (2008), Boulton and Braga-Alves (2010) and Kolanski et al. (2010) for the July/August ban in the US
• Boehmer et al. (2009) and Kolanski et al. (2010) for the September/October ban in the US
![Page 20: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/20.jpg)
Crisis related Bans
• Marsh and Payne (2010) for the UK
• Helmes et al. (2010) for Australia
• A broad international perspective incl. 30 countries is given in Beber and Pagano (2011)
![Page 21: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/21.jpg)
Beber and Pagano (2011)
• Their results for 30 countries underscore negative effects on market liquidity
![Page 22: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/22.jpg)
Beber and Pagano (2011)
• Their results for 30 countries underscore negative effects on market liquidity
• In addition, they find increased autocorrelations in the residuals of market model regressions
![Page 23: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/23.jpg)
Empirical Approach
• We aim at identifying the impact of short sale constraints on herding behavior
![Page 24: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/24.jpg)
Empirical Approach
• We aim at identifying the impact of short sale constraints on herding behavior
1. A measure of herding is needed
![Page 25: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/25.jpg)
Empirical Approach
• We aim at identifying the impact of short sale constraints on herding behavior
1. A measure of herding is needed2. Control for the effects of the crisis per se is
needed
![Page 26: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/26.jpg)
Empirical Approach
• We aim at identifying the impact of short sale constraints on herding behavior
1. A measure of herding is needed2. Control for the effects of the crisis per se is
needed3. Robust inference based on small/medium size
samples
![Page 27: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/27.jpg)
Measure of DispersionMeasure of Dispersion as an input to evaluate Herding: details
• St = dispersion: captures a key characteristics of herd behavior– N = number of stocks, – T = number of
observations– rit = return, stock i, time
t; – rmt = cross-sectional
weighted average of returns in a ‘portfolio’ of N stocks
Measure of Dispersion
Average deviation of a stock from the market proxies how investors discriminate between stocks
NOT anE(r)
Christie and Huang (1995)
![Page 28: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/28.jpg)
Rational Pricing
![Page 29: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/29.jpg)
Herding
![Page 30: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/30.jpg)
Adverse Herding
![Page 31: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/31.jpg)
Methodology: Regression Form
Autocorrelation:Schwert’s criterionFrom max to min,use a 10% criterion
¹ 0 meansdeviation from rationalAsset pricing
Proxies variance since2 2 2 2( ) ( ) ( )mt mt mt mtE r E r E r
BANNED CONTROL
IMPLIES SSR havean effect
(2)
d> 0 under rationalAsset pricing;{e.g., changing may be onereason}
Chang et al. (2000)
![Page 32: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/32.jpg)
Matching
• Matching variables: Market capitalization, trading volume and market beta (all standardized)
![Page 33: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/33.jpg)
Matching
• Matching variables: Market capitalization, trading volume and market beta (all standardized)
• Matching metric: Sum of squared differences in those three variables (Euclidean distance)
![Page 34: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/34.jpg)
Interpretation
In general, evidence supporting an effect of short sale constraints is found if the estimate for
significantly differs between test and control groups
![Page 35: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/35.jpg)
Interpretation
In particular, support for regulators’ point of view is given in case of a dampening effect of SSC on
herding which, in turn, is found if is significantly negative for the control group while being equal to
zero for the banned stocks.
0Control 0Test
![Page 36: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/36.jpg)
Interpretation
By contrast, evidence in line with a amplifying effect of SSC on herding, is found if is negative for the test group but equal to zero for the control
stocks.
0Control 0Test
![Page 37: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/37.jpg)
Bootstrap
A bootstrap algorithm • enables us to draw reliable inference from small
and medium samples
![Page 38: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/38.jpg)
Bootstrap
A bootstrap algorithm• enables us to draw reliable inference from small
and medium samples• allows us to directly test the H0 of Rational Asset
Pricing (i.e., CAPM-type)
![Page 39: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/39.jpg)
Bootstrap
We generate data by the following processes
1.titmiiti
rr,,,
![Page 40: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/40.jpg)
Bootstrap
We generate data by the following processes
1.
2.
titmiitirr
,,,
tiiitmiitiHMLSMBrr
,,,
![Page 41: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/41.jpg)
Further empirical issues
• Persistently rising vs falling markets may make a difference: sort St, by length of runs l {1,2}
![Page 42: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/42.jpg)
Further empirical issues
• Persistently rising vs falling markets may make a difference: sort St, by length of runs l {1,2}
• Threshold effects?
![Page 43: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/43.jpg)
Further empirical issues
• Persistently rising vs falling markets may make a difference: sort St, by length of runs l {1,2}
• Threshold effects?• Small cap versus large cap: former
exhibit more herding than latter; former lag latter in terms of correlation of returns
![Page 44: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/44.jpg)
Empirical Results
Recall that we bootstrap deviations from Rational Asset Pricing
![Page 45: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/45.jpg)
Empirical Results
Recall that we bootstrap deviations from Rational Asset Pricing
• Significance does not mean significantly different from zero
![Page 46: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/46.jpg)
Empirical Results
Recall that we bootstrap deviations from Rational Asset Pricing
• Significance does not mean significantly different from zero
• but significantly different from the value implied by the asset pricing model
![Page 47: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/47.jpg)
Empirical Results
Adverse Herding! Herding
![Page 48: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/48.jpg)
Empirical Results
![Page 49: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/49.jpg)
Empirical Results
• Almost no herding (either adverse or regular) in case of unbanned stocks
![Page 50: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/50.jpg)
Empirical Results
• Almost no herding (either adverse or regular) in case of unbanned stocks
• strong evidence for adverse herding for the stocks subject to the constraints for some countries
![Page 51: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/51.jpg)
Interpretation
• It is well known in the literature that short sale constraints create uncertainty about fundamental
asset values
![Page 52: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/52.jpg)
Interpretation
• It is well known in the literature that short sale constraints create uncertainty about fundamental
asset values• The work of Hwang and Salmon (2004, 2009) suggests
that during such turmoils investors loose trust in the market consensus and come back to fundamental based
pricing
![Page 53: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/53.jpg)
Interpretation
• It is well known in the literature that short sale constraints create uncertainty about fundamental
asset values• The work of Hwang and Salmon (2004, 2009) suggests
that during such turmoils investors loose trust in the market consensus and come back to fundamental based
pricing• This may show up in adverse herding, via an increased
dispersion of returns
![Page 54: Short Selling Bans and Institutional Investors' Herding Behavior: Evidence from the Global Financial Crisis Martin T. Bohl a, Arne C. Klein a and Pierre.](https://reader030.fdocuments.in/reader030/viewer/2022032804/56649e4f5503460f94b46da5/html5/thumbnails/54.jpg)
Thank you for your attention!