Table 1: Options Volume
This table shows average put and call volumes for each of the four periods in the study. Percentages given are the period volume in relation to the yearly average for each item. Statistical significance is given by ***, **, and * meaning 1%, 5%, and 10%
respectively.
Banned Stocks With Traded Options Non-banned S&P 500
Average Daily Volume Put Call Total Put Call Total
Before Ban 877,196 733,483 1,610,679 2,344,022 2,836,065 5,180,088 During Ban 920,596 1,076,540 1,997,136 2,582,875 2,882,450 5,465,325 After Ban 670,648 654,966 1,325,614 2,314,513 2,496,597 4,811,110 Total Period 832,247 734,466 1,566,713 2,350,474 2,760,809 5,111,284
Difference from Yearly Average Put Call Total Put Call Total
Before Ban 5.40% -0.13% 2.81% 8.48% 2.73% 1.35% During Ban 10.62% 46.57%*** 27.47%** 9.89% 4.41% 6.93% After Ban -19.42%*** -10.82%*** -15.39%*** -1.53% -9.57%* -5.87% Total Period 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
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Figure 1: Abnormal Options Volume
This Figure shows aggregate abnormal put and call volume for banned stocks compared with aggregate abnormal put and call volume for non-banned S&P 500 stocks. Abnormal volume is defined as the volume above the daily average for the full year.
2.81% 27.47% -15.39% 1.35% 6.93% -5.87% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Before Ban During Ban After Ban
Banned Stocks S&P 500
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Figure 2: Abnormal Put and Call Volume for Banned Stocks
This figure shows the abnormal put and call volume experienced by the banned stocks before, during, and after the ban on short sales. Abnormal volume is defined as volume above the yearly average.
5.40% 10.62% -19.42% -0.13% 46.57% -10.82% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Before Ban During Ban After Ban
Put Call
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Figure 3: Average Daily Put and Call Volume
This figure shows the average daily put and call volume for each of the four periods, before the ban (1/2/08 – 9/18/08), during the ban (9/19/08 – 10/8/08), and after the ban (10/9/08 – 12/31/08).
- 200,000 400,000 600,000 800,000 1,000,000 1,200,000
Before Ban During Ban After Ban Total Period
Put Call
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Table 2: Holding Period Returns
This table displays the holding period returns for the categories of stocks: banned stocks with traded options, banned stocks without traded options, and the non-banned S&P 500 control group. Holding period returns are given for four periods: before ban, during ban, after ban, and the full year of 2008. Differences are given for the two groups of banned stocks against the non-banned S&P 500 that hence was unaffected by the ban. The difference between the two banned groups is also given to highlight how the ban affects the two groups differently. Statistical significance is given by ***, **, and * meaning 1%, 5%, and 10% respectively.
Before Ban During Ban After Ban Entire Period
(2/1/08 – 9/18/08) (9/19/08 – 10/8/09) (10/9/08 – 12/31/08) (2/1/08 – 12/31/08) Non-banned S&P 500 -11.07% -23.70% -4.68% -37.61% Banned Stocks With Traded
Options -8.46% -25.32% 9.53% -31.02% Banned Stocks Without Traded
Options -17.53% -15.74% -7.93% -35.54%
Difference:
Banned With Options – Non-
banned S&P 500 2.61% -1.63% 14.21%*** 6.59%** Banned Without Options – Non
Banned S&P 500 -6.45%*** 7.95%*** -3.25% 2.07% Banned Without Options –
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Figure 4: Abnormal Holding Period Returns
This figure gives the return over the non-banned S&P 500 during each of the four holding periods. A 0% return on this graph is a return exactly equal to the return on the non-banned S&P 500 for the holding period. This is done to eliminate overall market fluctuations during the periods and isolate the effects felt by the short sale ban.
2.61% -1.63% 14.21% 6.59% -6.45% 7.95% -3.25% 2.07% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% Total Return Before Ban Total Return During Ban Total Return After Ban Total Period Return Ret urns o v er S& P 5 0 0
Holding Period Returns
Yes Options No Options
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Figure 5: Distribution by Market Capitalization
This figure shows the distribution by market capitalization of the two groups of banned stocks. Average market capitalization for the banned stocks with options is $7,017,200 and $729,381 for the banned stocks without options. Market capitalization is determined on September 18th, 2008, the day the ban was announced.
0 20 40 60 80 100 120 140 160 180 200 Yes Options No Options
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Table 3: Financial Sector Distribution
This table shows the distribution amongst various sectors of the financial industry for both of the groups of banned stocks. Sector information is listed exactly as it was pulled from Bloomberg.
Banned Stocks with Traded Options Banned Stocks without Traded Options
Banks 108 39% Asset Allocation Fund 1 0% Commercial Services 2 1% Banks 290 56% Diversified Finan Serv 42 15% Closed-end Funds 1 0% Electric 1 0% Commercial Services 2 0% Equity Fund 1 0% Diversified Finan Serv 29 6% Healthcare-Services 14 5% Engineering&Construction 1 0% Holding Companies-Divers 1 0% Equity Fund 1 0% Insurance 81 29% Holding Companies-Divers 5 1% Investment Companies 3 1% Home Builders 1 0% Pipelines 1 0% Insurance 54 10% Private Equity 2 1% Internet 2 0% Savings&Loans 19 7% Investment Companies 2 0% Water 1 0% Pipelines 1 0%
REITS 1 0%
Savings&Loans 126 24%
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Figure 6: Option Volume Trends over Time
This figure shows the trend in daily options volume for puts and calls over the course of the year.
0 500000 1000000 1500000 2000000 2500000 3000000 3500000
Total Call Volume Total Put Volume
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Figure 7: Daily Stock Returns over Time
This figure shows the daily return trend over the course of the year. This is expressed along a timeline, rather than in the sub periods that this study is broken down into.
-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15 1/2/2008 2/2/2008 3/2/2008 4/2/2008 5/2/2008 6/2/2008 7/2/2008 8/2/2008 9/2/2008 10/2/2008 11/2/2008 12/2/2008 Yes Options No Options S&P 500
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Timeline 1: 2008 Short Sale Ban and Preceding Months
This timeline presents a linear representation of the 2008 short sale ban and the events that lead to its enactment. Timeline credit to Van T. Nguyen and Alex P. Tang.
Date Event Description
Sunday, March 14, 2008 Bear Steams collapsed and was acquired by JP Morgan Chase
Tuesday, July 15, 2008 The SEC announced an emergency order and said it would tighten short-selling rules for 19 financial firms by requiring traders to "pre- borrow" stocks before initiating a so-called short-sale.
Tuesday, July 30, 2008 The SEC extended the emergency limit on short- sales to Tuesday, August 12, 2008.
Saturday, September 6, 2008 The government took control of the troubled mortgage giants Fannie and Freddie Mac.
Friday, September 12,2008 The Federal Reserve Bank (New York) called an emergency meeting of the heads of major
financial institutions to discuss the fate of Lehman Brothers, which had suffered a rapid plunge in its stock prices.
Tuesday, September 16, 2008 The US government seized control of the AIG in an $85 billion deal.
Wednesday, September 17, 2008
Stock prices of major financial institutions plummeted in the wake of the government decision to take over the AIG.
Thursday, September 18, 2008
The SEC announced that it was considering a temporary ban of some or all short-selling. Friday, September 19, 2008 The SEC issued a temporary ban on short-sales
of 799 financial stocks. Also required
institutional money managers to report their new short sales of certain publicly traded securities. The ban was set to expire on Thursday, October 2.
Wednesday. October 1, 2008 The SEC said that it was extending the ban to no later than Friday, October 17.
Friday, October 3, 2008 The House voted 263-171 to enact the
Emergency Economic Stabilization Act of 2008. Wednesday, October 8, 2008 The short-sale ban expired.
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