Securities Lending and Information Acquisition

38 Pages Posted: 1 Jul 2020

See all articles by Stefan Greppmair

Stefan Greppmair

Deutsche Bundesbank

Stephan Jank

Deutsche Bundesbank; University of Cologne - Centre for Financial Research (CFR)

Pedro A. C. Saffi

University of Cambridge - Judge Business School

Jason Sturgess

Queen Mary University of London

Date Written: May 19, 2020

Abstract

We show that mutual funds use information acquired by participating in the equity lending market to make portfolio allocation decisions. Using data from German mutual funds on their stock-level lending decisions, we find that funds lending shares are more likely to exit positions relative both to stocks that they do not lend and to funds that do not lend. Lenders also avoid losses by better timing the closure of long positions than for stocks they do not lend. Finally, we show information acquisition in the lending market allows lenders to front-run public disclosure of large short positions. The results suggest that the securities lending market provides a mechanism for mutual funds to acquire information.

Keywords: Equity lending markets, mutual funds, short sales, short interest, price revelation, public disclosure

JEL Classification: G10, G12, G14, G18

Suggested Citation

Greppmair, Stefan and Jank, Stephan and Saffi, Pedro A. C. and Sturgess, Jason, Securities Lending and Information Acquisition (May 19, 2020). Available at SSRN: https://ssrn.com/abstract=3604977 or http://dx.doi.org/10.2139/ssrn.3604977

Stefan Greppmair

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stephan Jank

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Pedro A. C. Saffi (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.pedrosaffi.com

Jason Sturgess

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

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