The Effects of Stock Lending on Security Prices: An Experiment

We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high loan fee stocks in the manager's portfolio and randomly making ava...

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Bibliographic Details
Published in:The Journal of finance (New York) 2013-10, Vol.68 (5), p.1891-1936
Main Authors: KAPLAN, STEVEN N., MOSKOWITZ, TOBIAS J., SENSOY, BERK A.
Format: Article
Language:English
Subjects:
Demand loans
Experiments
Fees
Impact analysis
Investment advisors
Loan management
Loans
Managers
Portfolio analysis
Securities issues
Securities lending
Security prices
Short sales
Skewed distribution
Stock exchange
Stock prices
Stock shares
Studies
Supply
Supply shocks
Volatility
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Summary:We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high loan fee stocks in the manager's portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent, and the second, from June 5 to September 30,2009, with over $250 million of securities lent. While the supply shocks significantly reduce market lending fees and raise quantities, we find no evidence that returns, volatility, skewness, or bid-ask spreads are affected. The results provide novel evidence on the impact of shorting supply and do not indicate any adverse effects on stock prices from securities lending.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12051