To Lend or Not to Lend: The Effect of Equity Lenders’ Preferences on the Shorting Market and Asset Prices

40 Pages Posted: 6 Dec 2012 Last revised: 21 Jan 2013

See all articles by Oleg Chuprinin

Oleg Chuprinin

UNSW; Financial Research Network (FIRN)

Massimo Massa

INSEAD - Finance

Date Written: September 1, 2012


We study the relationship between asset prices and short sale constraints by investigating how characteristics of institutional investors affect their willingness to lend stock to short sellers. We find that stocks with higher portfolio weights and stocks in which institutional investors traded successfully in the past are less likely to be lent out. Using these characteristics, we instrument the component of the short interest that is due to short sale constraints arising from lenders’ preferences. We relate this short-sale constraint measure to future stock performance and find strong evidence that stocks with higher short sale constraints deliver lower future returns. This relationship is more pronounced for stocks with lower information transparency, consistent with the hypothesis that short sale constraints combined with the investors’ dispersion of opinion cause stock overvaluation.

Keywords: short-sale constraints, institutional investors, stock overvaluation

JEL Classification: G11, G23

Suggested Citation

Chuprinin, Oleg and Massa, Massimo, To Lend or Not to Lend: The Effect of Equity Lenders’ Preferences on the Shorting Market and Asset Prices (September 1, 2012). FIRN Research Paper, Forthcoming; INSEAD Working Paper No. 2013/10/FIN. Available at SSRN: or

Oleg Chuprinin (Contact Author)

UNSW ( email )

Room 349, UNSW Business School
High St
UNSW Sydney, NSW 2052
406674419 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics