The debate around the practice of short-selling, to restrict or not, is continual among
academicians, regulators and practitioners. Short-selling bans are practiced by the
regulators with a belief that it has the power to improve the market quality. With an
objective to establish an academic standing to this date, this paper examines the last
body of literatures addressing this issue, limited to three market quality parametersliquidity,
speed of price discovery and stock pricing, and summarizes the ideas and
evidences. In most of the cases, the theoretical and empirical studies provide some clear
indication: short-selling bans are liquidity damaging, detrimental to the speed of price
discovery and has no or under-pricing effect, but in few cases the evidence is not straight
forward. Evidences are more generally different than what are popularly argued by the
regulators in imposing short-selling restrictions.
