Abstract

http://ssrn.com/abstract=2173606
 


 



Short-Sale Constraints and Securities Lending by Exchange-Traded Funds


Naresh Bansal


Saint Louis University - Department of Finance

Ryan McKeon


University of San Diego

Marko Svetina


University of San Diego


Managerial Finance, Vol. 39, No. 5, pp. 444 - 456 (2013)

Abstract:     
A stock's inclusion in an ETF has the potential to reduce its short sale constraints by decreasing search costs and lowering recall risk. This paper examines how the introduction of ETFs impacts short interest levels of their constituent stocks. We find that short selling in the underlying securities significantly increases after ETFs are introduced. The increase in short interest is largest for firms which are most short-sale constrained prior to the inclusion. The analysis of subsequent additions of stocks to ETFs reveals that the effect of increased short interest is significantly attenuated when compared to the first-time additions. Overall, our evidence suggests that the introduction of ETFs helps to alleviate short-sale constraints for stocks that they hold.

Keywords: Exchange-traded funds, short-sale constraints, short interest, securities lending

JEL Classification: G14, G23

Accepted Paper Series


Not Available For Download

Date posted: November 11, 2012 ; Last revised: April 19, 2013

Suggested Citation

Bansal, Naresh and McKeon, Ryan and Svetina, Marko, Short-Sale Constraints and Securities Lending by Exchange-Traded Funds. Managerial Finance, Vol. 39, No. 5, pp. 444 - 456 (2013) . Available at SSRN: http://ssrn.com/abstract=2173606

Contact Information

Naresh Bansal
Saint Louis University - Department of Finance ( email )
John Cook School of Business
St. Louis, MO 63108
United States
314-977-7204 (Phone)
Ryan McKeon
University of San Diego ( email )
5998 Alcala Park
San Diego, CA 92110-2492
United States
Marko Svetina (Contact Author)
University of San Diego ( email )
School of Business Administration
5998 Alcalá Park
San Diego, CA 92110
United States
(619) 260-4869 (Phone)
(619) 260-4891 (Fax)
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