Bond Lending and Bond Returns

58 Pages Posted: 4 Feb 2018 Last revised: 21 Sep 2018

See all articles by Mike Anderson

Mike Anderson

Mike Anderson

Brian J. Henderson

George Washington University - Department of Finance

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: January 18, 2018

Abstract

Existing literature nds that proxies for short-sale constraints do not predict bond returns. Using more comprehensive data over a longer sample period and rating and maturity-matched benchmarks we nd that utilization, which proxies for short-sale constraints, predicts negative returns. Many lending fees are negative or low, suggesting many bond loans are fi nancing transactions. The bonds with both high lending fees and high utilization, for which lending is likely associated with short sales and constraints are likely to be binding, display large negative excess returns. These results are robust to controlling for bond characteristics and information from the equity lending market.

Keywords: Securities Lending, Short Sales, Short Selling, Bond Lending, Informed Trading

JEL Classification: G1, G14

Suggested Citation

Anderson, Mike and Henderson, Brian Joseph and Pearson, Neil D., Bond Lending and Bond Returns (January 18, 2018). George Mason University School of Business Research Paper No. 18-12, Available at SSRN: https://ssrn.com/abstract=3110771 or http://dx.doi.org/10.2139/ssrn.3110771

Mike Anderson (Contact Author)

Mike Anderson ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Brian Joseph Henderson

George Washington University - Department of Finance ( email )

Department of Finance, Funger Hall
2201 G Street, NW
Washington, DC 20052
United States
202-994-3669 (Phone)

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

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