Short-Selling Restrictions and Returns: A Natural Experiment

53 Pages Posted: 7 Mar 2017 Last revised: 8 May 2020

See all articles by Fernando Barbosa

Fernando Barbosa

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finan├žas

Marco Bonomo

Insper Institute of Education and Research

Joao De Mello

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Lira Mota

Columbia University - Columbia Business School, Finance

Date Written: May 1, 2019

Abstract

We show that increases in stock loan fees have strong causal impact on stock prices. We identify these effects by exploiting exogenous variation in loan fees generated by a tax arbitrage opportunity that existed in Brazil from 1995-2014. The tax arbitrage involved differential tax treatment on dividend payments depending on investor's type. Our data set allows to distinguish between equity lending transactions motivated by tax-arbitrage from those with the purpose of short-selling the stock. Variation in loan fees on tax-motivated transactions were a source of repeated exogenous variation of borrowing fees in short-selling transactions.

Keywords: Short Selling, Short Selling Restrictions, Market to Borrow Stocks, Asset Pricing

JEL Classification: G12, G14

Suggested Citation

Barbosa, Fernando and Bonomo, Marco and De Mello, Joao M. P. and Mota, Lira, Short-Selling Restrictions and Returns: A Natural Experiment (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=2927732 or http://dx.doi.org/10.2139/ssrn.2927732

Fernando Barbosa

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finan├žas ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Marco Bonomo

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Joao M. P. De Mello

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Lira Mota (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

NY
United States
10027 (Fax)

HOME PAGE: http://sites.google.com/view/liramota

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