Yesterday a number of continental European regulators imposed a ban on short selling certain financial stocks.
They did so in an attempt to check the plunging share prices of some banks. The implication of the action is that its instigators believe that the falls are being made worse by short-term speculative activity. The proponents of short selling, on the other hand, argue that share prices reflect deeper factors and that any impact of short term trading on price levels is transitory at best. Short sellers do not make the weather but simply anticipate it. Who is right? Well, as it happens we have already had a controlled experiment in 2008, when the UK and other authorities did much the sam...
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