The Shorting Premium and Asset Pricing Anomalies

61 Pages Posted: 30 Jan 2014 Last revised: 15 Jul 2021

See all articles by Itamar Drechsler

Itamar Drechsler

Wharton School, Department of Finance; National Bureau of Economic Research (NBER)

Qingyi (Freda) Song Drechsler

University of Pennsylvania - Wharton Research Data Services

Multiple version iconThere are 2 versions of this paper

Date Written: May 4, 2018


Short rebate fees are a strong predictor of the cross-section of stock returns, both gross and net of fees. We document a large "shorting premium": the cheap-minus-expensive-to-short (CME) portfolio of stocks has a monthly average gross return of 1.31%, a net-of-fees return of 0.78%, and a 1.44% four-factor alpha. We show that short fees interact strongly with the returns to eight of the largest and most well-known cross-sectional anomalies. The anomalies effectively disappear within the 80% of stocks that have low fees, but are especially large among the high-fee stocks, even net of fees. We propose an explanation for these findings: the shorting premium is arbitrageurs' compensation for the concentrated risk they bear in shorting overpriced stocks. Because this risk is on the short side, a larger premium means a more overpriced stock. We proxy for shorting risk using stocks' covariance with the CME portfolio, and demonstrate that a Fama-French CME factor model largely captures the anomalies' returns within both high- and low-fee stocks.

Keywords: shorting, lending fees, shorting premium, anomalies, cross-section, asset pricing, concentrated risk, differences of opinion, segmentation, stock returns, value, momentum, idiosyncratic volatility, net share issuance

JEL Classification: G11, G12, G14

Suggested Citation

Drechsler, Itamar and Drechsler, Qingyi (Freda) Song, The Shorting Premium and Asset Pricing Anomalies (May 4, 2018). Available at SSRN: or

Itamar Drechsler (Contact Author)

Wharton School, Department of Finance ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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National Bureau of Economic Research (NBER) ( email )

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Qingyi (Freda) Song Drechsler

University of Pennsylvania - Wharton Research Data Services ( email )

3819 Chestnut St Suite 300A
St Leonard's Court
Philadelphia, PA 19104
United States

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