The news that the Securities and Exchange Commission’s top economist is leaving should highlight huge blot on the record of Chairman Mary Schapiro.
James Overdahl, the economist, run the unit of the SEC charged with evaluating the economic impact of proposed rules. In 2008 his office evaluated the impact of short sellers.
What the economists found is that a lack of evidence for the so-called “bear raids” in which short sellers were allegedly piling onto distressed stocks. Rather, short sales increased when stocks rallied. They concluded that there is no evidence that “episodes of extreme negative returns are the results of short-selling activity.”
But the SEC went ahead and adopted rules restricting short sales anyway, voting 3-to-2 to to limit short sales when a company’s stock falls 10 per cent from the previous day’s close. Overdahl’s departure highlights how much this is political pandering rather than good policy making based on empirical results.
Overdahl will step down March 31 to join NERA Economic Consulting, according to Bloomberg.