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The Effects of Stock Lending on Security Prices: An Experiment

Journal of Finance, Forthcoming

Chicago Booth Research Paper No. 09-39

Chicago Booth Initiative on Global Markets Working Paper No. 42

Fisher College of Business Working Paper No. 2009-03-020

Charles A. Dice Center Working Paper No. 2009-20

AFA 2011 Meetings Paper

73 Pages Posted: 22 Oct 2009 Last revised: 30 Apr 2013

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz

Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Berk A. Sensoy

Vanderbilt University - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 24, 2012

Abstract

We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high-loan fee stocks in the manager’s portfolio and randomly making available and withholding stocks from the lending market. The experiment ran 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. While the supply shocks significantly reduce market lending fees and raise quantities, we find no evidence that returns, volatility, skewness, or bid-ask spreads are affected. The results provide novel evidence on the impact of shorting supply and do not indicate any adverse effects on stock prices from securities lending.

Keywords: Short Selling, Securities Lending, Stock Prices

Suggested Citation

Kaplan, Steven N. and Moskowitz, Tobias J. and Sensoy, Berk A., The Effects of Stock Lending on Security Prices: An Experiment (August 24, 2012). Journal of Finance, Forthcoming; Chicago Booth Research Paper No. 09-39; Chicago Booth Initiative on Global Markets Working Paper No. 42; Fisher College of Business Working Paper No. 2009-03-020; Charles A. Dice Center Working Paper No. 2009-20; AFA 2011 Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1492278 or http://dx.doi.org/10.2139/ssrn.1492278

Steven Neil Kaplan (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Tobias J. Moskowitz

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Berk A. Sensoy

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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