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Trading options and CDS on stocks under the short sale ban

Author

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  • Ni, Sophie Xiaoyan
  • Pan, Jun

Abstract

We analyze price discovery in the options and CDS markets during the 2008 short-sale ban. Among the banned stocks, those with high open-purchased put–call ratios, low synthetic-to-stock price ratios, or high CDS rates exhibit poor performance in the following days. Additionally, options prices are more efficient for unbanned stocks during the ban period. These findings suggest that informed investors engage in derivative trading during highly distressed market conditions and that derivative prices contain more information about stock prices during the ban.

Suggested Citation

  • Ni, Sophie Xiaoyan & Pan, Jun, 2024. "Trading options and CDS on stocks under the short sale ban," Journal of Banking & Finance, Elsevier, vol. 167(C).
    • Handle: RePEc:eee:jbfina:v:167:y:2024:i:c:s0378426624001572
    DOI: 10.1016/j.jbankfin.2024.107243
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    More about this item

    Keywords

    Options; Derivatives; Short sale; Informed trading;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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