The Loan Fee Anomaly: A Short Seller's Best Ideas

48 Pages Posted: 3 Nov 2020

See all articles by Joseph Engelberg

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Richard B. Evans

University of Virginia - Darden School of Business

Gregory Leonard

University of North Carolina at Chapel Hill

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Matthew C. Ringgenberg

University of Utah - Department of Finance

Date Written: October 7, 2020

Abstract

We find that equity loan fees are the best predictor of cross-sectional returns. When compared to 102 other anomalies, the loan fee anomaly has the highest monthly long-short return (1.17%), has the highest monthly Sharpe Ratio (0.40), and unlike other anomalies, exhibits strong persistence throughout the sample. We show that 28% of the loan fee anomaly can be explained by its selective exposure to the best performing anomalies, while 72% is due to unique information possessed by short sellers. Our results show that short sellers' willingness to pay prices the cross-section of stocks and these "best ideas'' outperform other anomalies.

Keywords: Asset pricing anomalies, equity loan fees, short selling

JEL Classification: G12, G14

Suggested Citation

Engelberg, Joseph and Evans, Richard B. and Laonard, Gregory and Reed, Adam V. and Ringgenberg, Matthew C., The Loan Fee Anomaly: A Short Seller's Best Ideas (October 7, 2020). Available at SSRN: https://ssrn.com/abstract=3707166 or http://dx.doi.org/10.2139/ssrn.3707166

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Gregory Laonard

University of North Carolina at Chapel Hill ( email )

Chapel Hill, NC
United States

Adam V. Reed

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Matthew C. Ringgenberg (Contact Author)

University of Utah - Department of Finance ( email )

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

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