Regulatory debate continues on merits of short selling in turbulent markets
Regulators continue to disagree on rules to curtail short selling. Empirical evidence suggests constraining short sales significantly reduces market quality and can have unintended consequences.
Since the beginning of the financial crisis, the practice of short-selling has come under heightened scrutiny with regulatory reactions differing across countries. Investors short stocks for many reasons: some bet on the fall of a share’s price due to over-valuation, others as part of convertible arbitrage or long/short strategies, while others use the method for hedging purposes.
The practice
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