Did the short selling ban work?

The Wall Street Journal found it depends on who you talk to:

Floyd Norris, in his Marketplace column, noted that the 12 pure U.S. stocks rose 23% after July 15; the S&P 500’s financials rose 22% in the same period.

Still, S3 Matching Technologies, an Austin, Texas, data firm, points out that Fannie Mae’s stock fell 40% and Freddie Mac 41%. Those two stocks, you will remember, provided much of the catalyst for the emergency order.

But academic and corporate research indicate the experiment failed. Perhaps the strongest antiban argument comes from Arturo Bris, a professor at Swiss business school IMD who is affiliated with the Yale International Center for Finance. He tracked the 19 stocks protected by the SEC’s Emergency Order and examined short-selling data provided by the NYSE…

Bris’s most damning finding was that the emergency order impeded market efficiency–in effect, it distorted the “price discovery” process that it was hoping to fix. “The G19 stocks have suffered a significant reduction in intra-day return volatility and an increase in spreads, which suggests a deterioration of market quality,” Bris wrote.

In addition, some unprotected financial stocks–including Washington Mutual–were hit really hard. Bris told Deal Journal of the ban: “I think it targeted the wrong stocks.”

And for those with short-term (no pun intended) memory loss, the purportedly right stocks.

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