The COVID-19 pandemic, short-sale ban, and market efficiency: empirical evidence from the European equity markets

This study looks at the inefficiency of stock indices France, Italy, and Spain around their financial regulatory authorities’ short-sale ban during COVID-19 pandemic crisis. The empirical analysis this provides evidence price predictability basis futures contract prior to restriction. Moreover, results show a significant underpricing in contracts FTSE MIB IBEX35 while two months banned period. These findings suggest that prohibiting short selling market downturn might undermine markets’ efficiency generate arbitrage opportunities for speculative investors.