Private Information, Securities Lending, and Asset Prices

73 Pages Posted: 30 Jul 2018 Last revised: 14 Oct 2020

See all articles by Pedram Nezafat

Pedram Nezafat

University of Michigan at Ann Arbor - Finance

Mark D. Schroder

Michigan State University - The Eli Broad Graduate School of Management

Date Written: June 5, 2018

Abstract

We study the role of private information in the equity-lending market in a rational expectations model with endogenous loan fees. When all investors are privately informed, an increase in information precision reduces the fee by increasing trading aggressiveness and decreasing demand dispersion. However, when some investors are uninformed, the information asymmetry tends to increase the fee, and, thus, the overall effect of an increase in precision is ambiguous. We show that the fee can be incrementally informative given the stock price and that fee opaqueness tends to increase the fee but has an ambiguous effect on the stock price.

Keywords: Short Selling, Asset Prices, Equity Lending Fees, Information Asymmetry

JEL Classification: G10, G11, G12

Suggested Citation

Nezafat, Pedram and Schroder, Mark D., Private Information, Securities Lending, and Asset Prices (June 5, 2018). 31st Australasian Finance and Banking Conference 2018, Available at SSRN: https://ssrn.com/abstract=3222372 or http://dx.doi.org/10.2139/ssrn.3222372

Pedram Nezafat

University of Michigan at Ann Arbor - Finance ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Mark D. Schroder (Contact Author)

Michigan State University - The Eli Broad Graduate School of Management ( email )

323 Eppley Center
East Lansing, MI 48824-1121
United States
517-432-0622 (Phone)
517-432-1080 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
221
Abstract Views
2,038
Rank
250,507
PlumX Metrics