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

2022 American Finance Association Annual Meeting Paper

66 Pages Posted: 3 Nov 2020 Last revised: 31 Aug 2022

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: August 30, 2022

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 (1.17%), the highest monthly Sharpe Ratio (0.41), 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 71% 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

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 (August 30, 2022). 2022 American Finance Association Annual Meeting Paper, 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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