Let The Bear Beware: What Drives Stock Recalls

47 Pages Posted: 30 Aug 2016 Last revised: 29 Jan 2018

See all articles by Oleg Chuprinin

Oleg Chuprinin

UNSW; Financial Research Network (FIRN)

Thomas Ruf

University of New South Wales (UNSW)

Date Written: July 28, 2017


We exploit joint dynamics of lendable and lent shares in the equity lending market to measure recall activity by lenders. We find that high recall activity predicts poor stock performance and precedes the lowest returns by two months. This suggests that short sellers are forced out of otherwise profitable positions prematurely. Short sellers lose more of their potential profits if lenders have access to non-public information signals, if high inventory concentration and correlated signals among lenders limit loan diversification, and if negative information diffuses slowly in the market. Overall, we establish that informational sophistication of lenders is the primary driver of informative stock recalls, which are most damaging to profitable short positions.

Keywords: Short Selling, Recall Risk, Securities Lending

JEL Classification: G11, G14, G23

Suggested Citation

Chuprinin, Oleg and Ruf, Thomas, Let The Bear Beware: What Drives Stock Recalls (July 28, 2017). Available at SSRN: https://ssrn.com/abstract=2831261 or http://dx.doi.org/10.2139/ssrn.2831261

Oleg Chuprinin (Contact Author)

UNSW ( email )

Room 349, UNSW Business School
High St
UNSW Sydney, NSW 2052
406674419 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Thomas Ruf

University of New South Wales (UNSW) ( email )

High St
Sydney, NSW 2052

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