Journal of Financial Services Research

, Volume 44, Issue 1, pp 1–51

Banks, Bears, and the Financial Crisis


DOI: 10.1007/s10693-012-0148-9

Cite this article as:
Bailey, W. & Zheng, L. J Financ Serv Res (2013) 44: 1. doi:10.1007/s10693-012-0148-9


We test whether short selling is destabilizing comparing distressed financial firms to other firms using NYSE transactions records covering 4 years including the recent financial crisis. Aggressive short-selling is sometimes destabilizing by some measures, but its impact is small, vanishes quickly, is not necessarily larger for distressed firms or during the crisis, and is accompanied by other stabilizing effects. The evidence does not validate theoretical predictions from models of destabilizing speculative or predatory trading. Aggregate short-selling is largely unrelated to market-wide investor sentiment, credit risk, and ex ante volatility. Aggressive liquidation of long positions typically has more impact than short selling. Thus, the data cannot justify the restrictions on short sales of financial stocks imposed in September 2008.


Short selling Banks Financial crisis Speculation Predatory trading 

JEL classifications

G01 G10 G28 

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Samuel Curtis Johnson Graduate School of ManagementCornell UniversityIthacaUSA
  2. 2.Department of Economics and BusinessCity College of New YorkNew YorkUSA

Personalised recommendations