The Effects of Stock Lending on Security Prices: an Experiment
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Tobias J. Moskowitz
University of Chicago - Booth School of Business
Berk A. Sensoy
Ohio State University - Fisher College of Business
NBER Working Paper No. w16335
Working with a sizeable, anonymous money manager, we randomly make available for lending two-thirds of the high-loan fee stocks in the manager’s portfolio and withhold the other third to produce an exogenous shock to loan supply. We implement the lending experiment 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. The supply shocks are sizeable and significantly reduce lending fees, but returns, volatility, skewness, and bid-ask spreads remain unaffected. Results are consistent across both phases of the experiment and indicate no adverse effects from securities lending on stock prices.
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Date posted: September 7, 2010
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