Private Information, Securities Lending, and Asset Prices

45 Pages Posted: 30 Jul 2018 Last revised: 31 Jul 2018

See all articles by Pedram Nezafat

Pedram Nezafat

Michigan State University

Mark D. Schroder

Michigan State University - The Eli Broad Graduate School of Management

Date Written: June 5, 2018

Abstract

We analyze the role of private information in the equity loan market in a rational–expectations model with endogenous short–sale constraints. We show that when a group of investors is inhibited from participating in the equity loan market, excess demand for short selling, driven by either privately informed investors or liquidity traders, allows equity lenders to charge a fee for lending their shares. We show that information asymmetry among investors, arising from private information, reduces the expected lending fee; reduces short–selling risk, measured by the volatility of the lending fee; and has an ambiguous effect on the expected return.

Keywords: Short Selling, Asset Prices, Equity Lending Fees, Information Asymmetry

JEL Classification: G10, G11, G12

Suggested Citation

Nezafat, Pedram and Schroder, Mark D., Private Information, Securities Lending, and Asset Prices (June 5, 2018). 31st Australasian Finance and Banking Conference 2018. Available at SSRN: https://ssrn.com/abstract=3222372 or http://dx.doi.org/10.2139/ssrn.3222372

Pedram Nezafat

Michigan State University ( email )

MI
United States

Mark D. Schroder (Contact Author)

Michigan State University - The Eli Broad Graduate School of Management ( email )

323 Eppley Center
East Lansing, MI 48824-1121
United States
517-432-0622 (Phone)
517-432-1080 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
60
Abstract Views
353
rank
351,994
PlumX Metrics