LONDON, July 23 (IFR) - It was during the post-Lehmans environment that short selling bans became fashionable. The advantage of this episode was that it provided academics with plenty of data and undertake a more extensive study as to whether short selling bans work.

One such study was conducted by Marco Pagano and Alessandro Beber who in Feb-2010 presented a Vox paper titled "Short-selling bans in the crisis: A misguided policy". They conclude that "at best neutral in its effect on stock prices" but the impact on market liquidity "was clearly detrimental". The paper concludes by quoting SEC Chairman Christopher Cox on 31 December 2008: "Knowing what we know now, [we] would not do it again. The costs appear to outweigh the benefits".

What we can see by the actions of Italy (bank/insurance stock short selling ban until July 27) and Spain (bank stock short selling ban for 3-months) is that we are approaching the clutching at straws type strategy for the sovereigns as the current bailout script with its limited EFSF/ESM resources prove insufficient to contain the negative price action on Italian and Spanish bonds. Not only can the measures be countered by derivatives but it might lead to the selling pressure to shift to bonds instead.