Active Institutional Investors and Short Sale Constraints around the Global Financial Crisis
44 Pages Posted: 19 Jul 2014 Last revised: 19 Dec 2016
Date Written: October 3, 2015
In a sample of U.S. stocks, higher stock lending fees predict significantly lower excess returns beyond shorting demand and loan supply. This relation is stronger after October 2008 which is likely attributable to a regime shift in the lending market with the onset of the Global Financial Crisis. We show that active institutional lenders not only respond to demand but also price in private information around earnings news announcements. As lenders raise fees before negative announcement in expectation of higher future shorting demand, they likely create more binding short-sale constraints when short selling could be essential for price discovery.
Keywords: Institutional ownership, Securities lending market, Short sales, Short sale constraints
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation