Fund Performance and Equity Lending: Why Lend What You Can Sell?
Review of Finance (2017) V21 (3), 1093-1121
52 Pages Posted: 6 Jul 2012 Last revised: 7 Jun 2017
Date Written: February 1, 2016
The dramatic increase in the percentage of mutual funds lending equities suggests that lending fees are an increasingly important source of income for investment advisors. We find that funds that lend equities underperform otherwise similar funds in spite of lending income. The effect of lending is concentrated in funds that cannot act on the short-selling signal due investment restrictions set by the fund family to diversify their fund offerings across styles. Our findings suggest that the family organization explains why fund managers lend, rather than sell, stocks with short selling demand.
Keywords: Mutual funds, Index funds, Performance, Security lending
JEL Classification: G12, G14, G15, G23
Suggested Citation: Suggested Citation