Despite strong theoretical predictions based on disagreement, limited empirical evidence has linked short selling restrictions to higher prices. We test this relationship using quasi-experimental methods based on Rule 201, a threshold-based policy that restricts aggressive short selling when...

We use a heterogeneous agent model to explain market crashes resulting from an unanticipated deleveraging shock. In a market with short sale constraints, when the opinions of investors diverge substantially, the market price is set by the demand schedule of optimistic investors while pessimistic...