Short-Selling Restrictions and Returns: A Natural Experiment
53 Pages Posted: 7 Mar 2017 Last revised: 8 May 2020
Date Written: May 1, 2019
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: Suggested Citation