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

See all articles by Eric C. Chang

Eric C. Chang

University of Hong Kong - School of Business

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Xiaorong Ma

University of Hong Kong - School of Business; National Taiwan University - College of Management

Date Written: December 09, 2016

Abstract

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

Chang, Eric Chieh C. and Lin, Tse-Chun and Ma, Xiaorong, Stock Price Crashes and Equity Lending Market Condition: Evidence from Lending Fees and Fee Risk (December 09, 2016). Available at SSRN: https://ssrn.com/abstract=2755170 or http://dx.doi.org/10.2139/ssrn.2755170

Eric Chieh C. Chang

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Tse-Chun Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiaorong Ma

University of Hong Kong - School of Business ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

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