Analysis of market quality before and during short-selling bans

•The impact of the August 2011 short selling bans in several European countries was short-lived.•The short-selling restrictions did not contribute to reduce the volatility of the stocks subjected to the bans.•The bans did have a negative impact on liquidity.•The bans did have a modest influence on the price efficiency of financial stocks.

We measure the impact of the August 2011 bans on covered short-selling adopted by several European countries. Our results provide evidence that the impact on prices was short-lived: the positive price impact disappears after ten days. The short-selling restrictions did not contribute to reduce the volatility of the financial stocks subjected to the bans; on the contrary, our findings indicate that volatility actually increased by a greater extent for these stocks than for other financial stocks with similar characteristics. The bans also had a negative impact on liquidity. Moreover, stocks subjected to the bans exhibit a longer delay in the assimilation of negative market news during the banning span.