The Loan Fee Anomaly: A Short Seller's Best Ideas
Forthcoming, Management Science
Kenan Institute of Private Enterprise Research Paper No. 3707166
68 Pages Posted: 3 Nov 2020 Last revised: 31 Aug 2022
Date Written: April 30, 2024
Abstract
We find that equity loan fees, which have been largely ignored by the anomalies literature, are the best predictor of cross-sectional returns. When compared to 102 other anomalies and other short selling measures, the loan fee anomaly has the highest monthly long-short return (4.01%), the highest monthly Sharpe Ratio (0.66), and unlike other anomalies, exhibits strong persistence throughout the sample. While prior work has shown that existing anomalies reside in high loan fee stocks, we find that 42% of loan fee outperformance is due to unique information not contained in other anomalies. Future papers that examine cross-sectional predictors of returns should include the single most effective predictor: loan fees.
Keywords: Asset pricing anomalies, equity loan fees, short selling, securities lending
JEL Classification: G12, G14
Suggested Citation: Suggested Citation