"Overseas Short Selling Ban Has Little Impact on Stock Market... Precise Market Stabilization Needed"

Countries Banning Short Selling Show Little Difference from Those That Do Not
As Ban Periods Vary, Sophisticated Market Stabilization Measures Are Also Important

Nam Gil-nam, Head of the Capital Market Office at the Korea Capital Market Institute (Source: Screenshot from Korea Capital Market Institute YouTube)

[Asia Economy Reporter Minwoo Lee] An analysis has emerged that the impact on the market was limited when countries such as Spain and Italy lifted short-selling bans after imposing them, compared to countries like the United States and the United Kingdom, which never banned short selling. However, since the domestic stock market has banned short selling for an extended period, it is pointed out that if it resumes, the market shock could be significant, requiring meticulous measures to accompany it.

Nam Gil-nam, Director of the Capital Market Research Institute's Capital Market Office, made this claim on the 28th during the '2021 Capital Market Outlook and Key Issues' event held online by the Capital Market Research Institute. Director Nam emphasized, "It has been 10 months since the full ban on short selling was implemented on March 15 last year, and concerns about resuming short selling are growing. Looking at other countries that banned and then lifted short selling around a similar time, the impact on the market was limited."

A total of seven countries resumed short selling after a full ban last year. European countries such as Greece, Belgium, Spain, Austria, Italy, and France banned short selling for about two months around March last year and then resumed it. Malaysia resumed short selling on December 31 last year.

Director Nam explained, "In countries that lifted the short-selling ban, the return during the ban period was 21.3%, the one-day return immediately after lifting was minus (-) 1.9%, and the five-day return immediately after lifting was 0.6%. In contrast, countries like the United States, Japan, and Germany, which did not ban short selling during this period, had returns of 23.4% during the same period, 0% one-day return immediately after, and 1.9% five-day return, showing no significant difference." He argued that the impact of lifting the ban was limited.

However, he added a caveat that direct comparison is difficult due to differences in the duration of the short-selling ban. Director Nam said, "In the case of the Philippines, the market was completely closed on March 17-18 last year, and the stock price plunged 13.3% on the reopening day. Since a full ban for market stabilization can cause market shocks at the time of lifting, more sophisticated market stabilization measures are necessary."

Meanwhile, this year’s stock market is expected to see the continued expansion of individual investors' influence, just like last year. Individual investors net purchased a total of 63.8083 trillion won in the domestic stock market last year, contrasting with a net sale of 4.7107 trillion won the previous year. Director Nam explained, "Especially with a large influx of new young investors, aggressive trading behavior with frequent transactions has increased. Given that stock investment is expected to continue mainly among high-income groups who reduced consumption such as travel due to the COVID-19 situation, individual investors will be an important variable."

This content was produced with the assistance of AI translation services.