Private Information, Securities Lending, and Asset Prices
73 Pages Posted: 30 Jul 2018 Last revised: 14 Oct 2020
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: Suggested Citation