The Loan Fee Anomaly: A Short Seller's Best Ideas
48 Pages Posted: 3 Nov 2020
Date Written: October 7, 2020
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: Suggested Citation