A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market

56 Pages Posted: 8 Mar 2008 Last revised: 9 Oct 2012

Adam C. Kolasinski

Texas A&M, Mays School of Business

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Matthew Ringgenberg

University of Utah - Department of Finance

Date Written: October 8, 2012

Abstract

Using unique data from 12 lenders, we examine how equity lending fees respond to demand shocks. We find that when demand is moderate, fees are largely insensitive to demand shocks. However, at high demand levels, further increases in demand lead to significantly higher fees and the extent to which demand shocks impact fees is also related to search frictions in the loan market. Moreover, consistent with search models, we find significant dispersion in loan fees, with this dispersion increasing in loan scarcity and search frictions. Our findings imply that search frictions significantly impact short selling costs.

Keywords: short sale constraints, equity lending, short selling

JEL Classification: G12, G29

Suggested Citation

Kolasinski, Adam C. and Reed, Adam V. and Ringgenberg, Matthew, A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market (October 8, 2012). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1102573 or http://dx.doi.org/10.2139/ssrn.1102573

Adam C. Kolasinski

Texas A&M, Mays School of Business ( email )

360 Wehner
College Station, TX 77843-4218
United States

Adam V. Reed (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Matthew C. Ringgenberg

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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