Bad Regulation: Short Selling

Abstract

Short selling involves the selling of a stock (or any other financial asset) that has been borrowed from a third party with the intention of buying it back at a later date to return to that third party. While the object of short selling may be any asset (including currencies and derivatives), the regulation of short selling is mainly directed at the short selling of stocks. For some reason, it has been the case that it is fine to sell short a currency or a crude oil futures contract but if you short sell a stock, you inflict damage on the underlying company, the whole market and the economy at large. For the purpose of this chapter, “short selling” is the short selling of stocks, since there seems to be no controversy about the short selling of anything except stocks.