It took just one day for the euphoria to wear off. News of a short selling ban in South Korea on Monday sparked a 6 per cent jump in the country’s benchmark Kospi index, the most in more than three years. The next day a sharp share price reversal triggered a circuit breaker. That should not surprise. Short selling bans historically have had little lasting impact on market activity.
Korean regulators ordered a full ban on short selling — the first such restriction in three years — that will last through June.
Hopes abound for this blunt policy instrument in Korea. Retail investors count on the ban to encourage short covering to boost stock prices. Politicians yearn to win favour from voters.
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