Sep 24, 2008

banning short selling really works

For a taste of what might be in the future for US stocks now that short selling has been banned on financial stocks (a list that bizarrely keeps growing to add General Motors, IBM, General Electric, etc.) take a look at the Karachi stock market in Pakistan.

Here's the timeline. June 25 a ban on short selling is instituted. You can see the pop on the chart below. What happened after the pop? Further precipitous declines. Ahh Ooops!

How come it flatlines around August 25? Because a new rule was instituted that said the Karachi 100 Index couldn't trade below 9144. Let's see what happens when that false limit is eventually lifted.

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