Stock Price Crashes and Equity Lending Market Condition: Evidence from Lending Fees and Fee Risk
59 Pages Posted: 30 Mar 2016 Last revised: 9 Dec 2016
Date Written: December 09, 2016
We find that stock price crash risk is positively associated with lagged equity lending fee and fee risk. This positive relation is stronger for the stocks with a lower short interest level and higher information uncertainty. Our results are robust to using alternative measures of price crash risk and equity lending market conditions. We also find similar results when we adopt a fuzzy regression-discontinuity design based on Russell index reconstitution and a differences-indifferences methodology based on Reg SHO Pilot Program. Overall, our findings indicate that the improvement in equity lending market conditions leads to a lower stock price crash risk.
Keywords: stock price crash risk, short selling risk, lending fee, fee risk, information uncertainty, short interest
JEL Classification: G10, G12, G20
Suggested Citation: Suggested Citation