European Journal of Business Science and Technology 2022, 8(2):233-243 | DOI: 10.11118/ejobsat.2022.013

Time-Varying Effect of Short Selling on Market Volatility During Crisis: Evidence from COVID-19 and War in Ukraine

Kwaku Boafo Baidoo1
1 Mendel University in Brno, Czech Republic

In this paper, we empirically investigate the effect of short selling on market volatility during exogenously-induced uncertainties. Using the Covid-19 pandemic and the onset of the Russian-Ukraine Conflicts periods as event study, we employ the asymmetric EGARCH model. We show high persistence and asymmetric effects of market volatility during the pre-covid outbreak and post-covid outbreak periods. We find evidence that short selling increases market volatility during the pre-covid outbreak period while the period of the Russian-Ukraine conflict is characterized by reduced volatility. We find no evidence of short selling effect on market volatility during the post-covid outbreak period. Our findings provide significant implications for short-selling strategies during crisis periods.

Keywords: short-selling, market volatility, COVID-19, Russian-Ukraine conflict
JEL classification: C22, G11, G12, G14

Received: November 27, 2022; Revised: December 21, 2022; Accepted: December 21, 2022; Published: December 31, 2022  Show citation

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Baidoo, K.B. (2022). Time-Varying Effect of Short Selling on Market Volatility During Crisis: Evidence from COVID-19 and War in Ukraine. European Journal of Business Science and Technology, 8(2), 233-243. doi: 10.11118/ejobsat.2022.013
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