Research Shows Short Selling Restrictions Don't Affect Markets December 30, 2008 The emergency short selling restrictions imposed in various markets around the world earlier this year have not changed the behavior of stock returns, according to new research from professors at London's Cass Business School. Professors Ian Marsh and Norman Niemer examined daily returns on U.K., U.S., Italian, French and German shares before and after the introduction of restrictions on short selling, including shares which are subject to the restrictions, and those which are not. They found that stocks subject to the restrictions behaved very similarly both to how they behaved before their imposition and to how stocks not subject to the restrictions behaved. Comparing behavior across countries where the nature of the restrictions differed, the authors found no systematic patterns consistent with the expected effect of the new regulations, i.e. no evidence of a reduced probability of large price falls. The authors also found no sign of any detrimental impact of the constraints in terms of reduced efficiency of pricing. Regression analysis suggested that changes in stock returns were driven mainly by other factors affecting the financial sector as a whole rather than the restrictions on short selling. The study was commissioned by the International Securities Lending Association, the Alternative Investment Management Association and the London Investment Banking Association. who is affected by short sale restriction rules? who is harmed? who benefits?