Unveiling Mutual Funds' Securities Lending Strategies: Value versus Volume

40 Pages Posted: 25 Jun 2024

See all articles by Shuaiyu Chen

Shuaiyu Chen

Purdue University - Mitchell E. Daniels, Jr. School of Business

Anh Tran

University of Connecticut

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: June 15, 2024

Abstract

Using mutual funds' securities lending patterns, we propose a data-driven method using association rules to differentiate shorting demand for general hedging and for exploiting firm-specific negative information, which enables us to quantify whether a fund engages in value lending (low quantity and high fee) or volume lending (high quantity and low fee). Contrary to the common prior that securities lending is conducted at the fund family or lending agent level, we find rich heterogeneity in funds' lending strategies within family and lending agent. Despite a lower lending revenue split with lending agents, volume lenders generate higher lending revenue and can better offset fund expense ratio than value lenders. Volume lenders also enhance their yield on cash collateral by lending cash through repurchase agreements to borrowing agents with securities lending relations.

Keywords: Mutual funds, Securities lending, Repurchase agreement

Suggested Citation

Chen, Shuaiyu and Tran, Anh and Wang, Pingle, Unveiling Mutual Funds' Securities Lending Strategies: Value versus Volume (June 15, 2024). Available at SSRN: https://ssrn.com/abstract=4867141 or http://dx.doi.org/10.2139/ssrn.4867141

Shuaiyu Chen

Purdue University - Mitchell E. Daniels, Jr. School of Business ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
5853198838 (Phone)
47906-1744 (Fax)

Anh Tran

University of Connecticut ( email )

CT
United States

Pingle Wang (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

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

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