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Using Short-Selling Bans as a Natural Experiment in Market Volatility

Article Quant Q&A · Author: Alexey Kalmykov
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Summary

The document proposes a master’s thesis studying how short-selling restrictions affected financial firms during the 2008 crisis. The suggested design compares similar banks or financial companies in countries that banned short sales with counterparts in countries where short selling remained allowed. Similarity could be assessed using characteristics such as firm size, pre-crisis volatility, and asset mix, while crisis-period volatility serves as an outcome of interest.

The proposal presents a natural experiment as a potentially manageable starting point for applied research, with room for later extensions. It does not report findings, specify a formal statistical model, identify data sources, or explain how to address differences between countries and firms beyond matching on observed characteristics. Those limitations matter: the comparison could reflect other country-specific crisis conditions, and a short thesis would need to define the sample, treatment period, and robustness checks carefully.

Key ideas

  • A short-selling ban can provide a natural experiment for studying market outcomes.
  • Compare similar firms in countries with different short-sale rules during the crisis.
  • Pre-crisis size, volatility, and asset mix are suggested matching characteristics.
  • Crisis-period volatility is a possible outcome, but the proposal reports no empirical results.

Tags

EquitiesVolatilityEvent-drivenStatistics
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# What is a good topic on financial time series analysis for master thesis?


# What is a good topic on financial time series analysis for master thesis?












Can someone suggest a topic or some reasonably narrow area in financial time series analysis (e.g. statistical, machine learning, etc.) which can make a good topic for a master thesis? By 'good' I mean that it's perspective i.e. can be extended to PhD-level studies, but still manageable in 3-4 month time for an applied math master student. Thank you.

Edit: Thank you for the feedback. The field is indeed very broad and well developed that's why I would like to have some input from the community. Let's narrow down to high frequency financial time series or market microstructure (but if you come up with ideas in different areas I would be most grateful to hear it).

## Answer by user189035 (score 10, accepted)

https://quant.stackexchange.com/a/1387

Natural experiments are good working material for MA-thesis (less issue statistically speaking, quicker path to results,...).

A good one recently in finance deals with short selling ban: in many countries in the euro-zone, in 2008, short sales were banned on some banks/financial corporations in some countries (Greece, France, Belgium, Germany) while still allowed in others. You could try to find some banks that are similar in many characteristic (size, volatility in the years leading to 2008, type of assets) and see to what extend there behavior (volatility) was different during the crisis conditional to being in a no-short sale country or not.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.