A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market
Adam C. Kolasinski
Texas A&M, Mays School of Business
Adam V. Reed
University of North Carolina Kenan-Flagler Business School
University of Utah - Department of Finance
October 8, 2012
Journal of Finance, Forthcoming
Using unique data from 12 lenders, we examine how equity lending fees respond to demand shocks. We find that when demand is moderate, fees are largely insensitive to demand shocks. However, at high demand levels, further increases in demand lead to significantly higher fees and the extent to which demand shocks impact fees is also related to search frictions in the loan market. Moreover, consistent with search models, we find significant dispersion in loan fees, with this dispersion increasing in loan scarcity and search frictions. Our findings imply that search frictions significantly impact short selling costs.
Number of Pages in PDF File: 56
Keywords: short sale constraints, equity lending, short selling
JEL Classification: G12, G29
Date posted: March 8, 2008 ; Last revised: October 9, 2012
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