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Crisis and non-crisis short selling and bank enforcement actions

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  • Boni, Leslie
  • Leach, J. Chris
  • White, Reilly S.

Abstract

Employing standard informed trading intuition, we develop testable hypotheses regarding short selling before and after bank enforcement action (EA) initiations. For U.S.-listed bank firm data for 2007 to 2012, we find strong support for differentiated short seller activity and skill in crisis versus non-crisis periods. In financial crises, short sellers predominantly position prior to EAs. The EA initiations then act as information-homogenizing and profit-taking events reducing incentives to remain positioned. In contrast, EAs in non-crisis periods appear to serve as wake-up calls that attract additional short selling. Our findings offer potentially important insights for regulators considering short sellers’ reactions to EA announcements in general, during financial crises, and when not experiencing a broad financial crisis.

Suggested Citation

  • Boni, Leslie & Leach, J. Chris & White, Reilly S., 2021. "Crisis and non-crisis short selling and bank enforcement actions," Journal of Banking & Finance, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:jbfina:v:132:y:2021:i:c:s0378426621001941
    DOI: 10.1016/j.jbankfin.2021.106235
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    References listed on IDEAS

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    More about this item

    Keywords

    Enforcement actions; Short selling; Short interest; Regulation; Banking;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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