Does the Lending Rate Impact ETF's Prices?

19 Pages Posted: 23 Apr 2012

See all articles by Alan Genaro

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration

Marco Avellaneda

New York University (NYU) - Courant Institute of Mathematical Sciences; Finance Concepts LLC

Date Written: April, 23 2012

Abstract

In this paper we developed an econometric model to empirically test the hard-to-borrow model of Avellaneda and Lipkin (2009) where asset prices jump as result of "buy-in" procedures. The model is estimated using an extent version of simulated maximum likelihood (SML) for a selected group of Leveraged ETF, mainly short LETFs, because these instruments have been sporadically hard-to-borrow and are liquids. In general we do not find enough statistical evidence supporting that hard-to-borrow effect impacts LETFs prices. On the other hand, we did find statistical evidence supporting the jump-diffusion model for some Leveraged ETFs.

Keywords: Hard-to-borrow, Short-selling

JEL Classification: G12, G14, G17

Suggested Citation

Genaro, Alan and Avellaneda, Marco, Does the Lending Rate Impact ETF's Prices? (April, 23 2012). Available at SSRN: https://ssrn.com/abstract=2044839 or http://dx.doi.org/10.2139/ssrn.2044839

Alan Genaro (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration ( email )

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Marco Avellaneda

New York University (NYU) - Courant Institute of Mathematical Sciences ( email )

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