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

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Melissa Porras Prado

Nova School of Business and Economics

Date Written: February 1, 2016

Abstract

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

Evans, Richard B. and Ferreira, Miguel Almeida and Porras Prado, Melissa, Fund Performance and Equity Lending: Why Lend What You Can Sell? (February 1, 2016). Review of Finance (2017) V21 (3), 1093-1121. Available at SSRN: https://ssrn.com/abstract=2101604 or http://dx.doi.org/10.2139/ssrn.2101604

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Melissa Porras Prado (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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