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http://ssrn.com/abstract=1358590
 
 

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The Cost of Short-Selling Liquid Securities


Snehal Banerjee


Kellogg School of Management - Department of Finance

Jeremy J. Graveline


University of Minnesota - Carlson School of Management

September 9, 2011

Journal of Finance, Forthcoming

Abstract:     
Standard models of liquidity argue that the higher price for a liquid security reflects the future benefits that long investors expect to receive. We show that short-sellers can also pay a net liquidity premium, if their cost to borrow the security is higher than the price premium they collect from selling it. We provide a model-free decomposition of the price premium for liquid securities into the net premiums paid by both long investors and short- sellers. Empirically, we find that short-sellers were responsible for a substantial fraction of the liquidity premium for on-the-run Treasuries from November 1995 through July 2009.

Number of Pages in PDF File: 35

Keywords: On The Run Treasuries, Short Selling, Liquidity

JEL Classification: G12

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Date posted: March 13, 2009 ; Last revised: September 10, 2011

Suggested Citation

Banerjee, Snehal and Graveline, Jeremy J., The Cost of Short-Selling Liquid Securities (September 9, 2011). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1358590

Contact Information

Snehal Banerjee (Contact Author)
Kellogg School of Management - Department of Finance ( email )
Evanston, IL 60208
United States
Jeremy J. Graveline
University of Minnesota - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
612-626-7817 (Phone)
HOME PAGE: http://www.tc.umn.edu/~jeremy/
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