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Letters | As coronavirus shocks stock markets, why call to ban short selling is absurd
- Hedge funds should not be held responsible for market declines at a time when much larger traditional funds have been heavily selling stocks
- Hedge funds short stocks to protect the investors in their funds, which include pension plans
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David Brown wrote in your newspaper calling for a global ban on short selling during the coronavirus pandemic (“Coronavirus pandemic should prompt a global ban on short selling if hedge funds cannot self-regulate”, March 23).
Sure, stock markets have plummeted, but the cause of this is that investors around the world have recognised that a global recession is going to have a severe impact on corporate earnings. To suggest that hedge funds are exacerbating this by engaging in short selling is absurd.
Hedge funds are a small part of the investment funds industry and cannot be held responsible for market declines at a time when there is clear evidence that much larger traditional funds have been heavily selling stocks.
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Hedge funds short stocks to hedge against downward movements in markets. They do so to protect the investors in their funds, which include pension plans, and so far they have been doing a pretty good job of it.
To say they are seeking to profit from others’ misery is completely untrue. They have a duty to protect their investors who in large part have entrusted the retirement savings of millions of people to their care.
Moreover, short selling bans have been proved not to work to reduce volatility and arrest price declines. Many academic studies concluded that in the aftermath of the global financial crisis in 2008.
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