Short Sale Constraints and the Likelihood of Crashes and Bubbles

  title={Short Sale Constraints and the Likelihood of Crashes and Bubbles},
  author={Arne Klein and Martin T. Bohl},
  journal={Econometrics: Applied Econometric Modeling in Financial Economics eJournal},
  • A. KleinMartin T. Bohl
  • Published 1 March 2012
  • Economics
  • Econometrics: Applied Econometric Modeling in Financial Economics eJournal
In this paper, we investigate short sale constraints' impact on the incidence of extreme stock market movements. The latter can be used to proxy for the likelihood of tail events like crashes and bubbles in a market and, thus, is a crucial measure of stock market stability. Since crashes and bubbles are, almost by definition, unpredictable, we, unlike scarce prior research which relies on simple descriptive statistics, address only the component of the return which hits investors unexpectedly… 

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