Self-regulation, short-selling and market liquidity: evidence from Australia’s 1930s stock exchange bans

Do self-imposed short-selling bans stabilise markets or impair them? We study the 1930 restrictions on non-mining shares introduced by the self-regulated Sydney (SSX) and Melbourne (MSX) exchanges one day apart. Using hand-collected daily quotes and trades for four weeks around the bans, we estimate difference-in-differences models by exchange and by listing status, and stratify firms by pre-ban liquidity and returns. Bid–ask spreads widen overall, most for initially illiquid firms and on SSX, while MSX effects are weaker, consistent with brief cross-venue substitution. Trading volumes adjust unevenly, with notable contractions among high-volume non-mining and dual listed firms. Returns show no systematic impact, although relative gains accrued to high-return non-mining firms on SSX. Overall, the bans introduced new frictions in liquidity and participation without providing broad price support. Our results underscore the limited effectiveness of self-regulated short-selling restrictions and offer historical insights for today’s self-regulated markets such as cryptocurrency and over-the-counter trading.