Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, August 4, 2014

Huszar, Tan & Zhang on Securities Lending

Zsuzsa R. Huszar, R.S.K. Tan, and Weina Zhang have posted Stock Lending from Lenders’ Perspective: Are Lenders Price Takers? on SSRN with the following abstract:

This study provides new insights about the source of short sale constraints, by showing that lending fees predict future returns beyond shorting demand in recent years. Focusing on lenders’ perspective, we reveal that lending fees are on average significantly higher for stocks with large active institutional ownership. For stocks with high active institutional ownership lending fees not only respond to shorting demand but are raised in anticipation of new future shorting demand. Specifically, fees are about 8% higher before earnings announcements and 15% higher before dividend declaration dates for stocks with 50% active institutional ownership than for stocks without active institutional ownership. Lastly, we find that the negative relationship between future returns and lending fees strengthens after the Lehman Brothers collapse as active institutions’ likely become more proactive in capitalizing lending fee revenues in the newly transparent and automated stock lending market.

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