Tuesday, September 30, 2008

Investigations: SEC's Shorting Ban Could Prolong Crisis

The SEC's ban on short-selling financial stocks - and similar bans in Canada and elsewhere - are unlikely to help those companies and may just prolong the market crisis, says this report by analyst Mark Hulbert, who specializes in statistical studies of the markets. Short-sellers tend to react to market momentum, rather than cause it, according to research Hulbert cites. As well, while SEC restrictions on naked short-selling were in place last summer, the financial stocks affected actually performed worse on average than the rest of the market, the research shows. Hulbert reports that the SEC's own research supports these conclusions. He notes that the ban impairs normal market dynamics and could cause stocks to trade at values that diverge widely from their true value.

TAGS: market, SEC, investigations

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