The end of short selling: What consequences?

The GameStop affair may herald the end of short selling. Individual investors coordinated in large numbers to buy the shares of a number of companies (GameStop, AMC) which funds had sold short. This resulted in a loss of at least USD 20 billion for the short sellers of GameStop alone. If such activity among individual investors persists , funds will have to stop short selling. What would happen if short selling disappeared? In the short term, short sellers have to cover losses by obtaining cash , which leads them to sell their equity portfolio s , driving down indices . This has been clear to see; In the medium term, the consequences are numerous: Bad news about a company received by investors who monitor it would not cause that company’s share price to fall: the equity market would then become asymmetric and react more to good news than to bad news; Share prices would no longer convey negative information about companies to all market participants. The informational content of equity markets , in the event of bad news about a company, would therefore disappear. Accordingly, equity market s would generate less incentive for company managers to improve their company .