How Do Short-Sale Costs Affect Put Options Trading? Evidence from Separating Hedging and Speculative Shorting Demands
Review of Finance, Forthcoming
59 Pages Posted: 22 Jul 2014 Last revised: 10 Sep 2015
Date Written: September 10, 2015
We find that put options trading volume and bid-ask spreads both increase with equity lending fees. However, we also find that put options trading volume decreases with lending fees for banned stocks during the 2008 Short-Sale Ban period, when only options market makers could short. By separating the speculative demand of short sellers from the hedging demand of options market makers in the lending market, our results provide a thorough analysis of the interaction between the options market and the equity lending market. We also shed light on the substitutability/complementarity between put options volume and short interest shown in the literature.
Keywords: Put options, short-sale costs, lending fee, short selling, 2008 Short-Sale Ban
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation