Does the Lending Rate Impact ETF's Prices?

Alan de Genaro and Marco Avellaneda

Brazilian Review of Econometrics, 2019, vol. 38, issue 2

Abstract: In this paper we developed an econometric model to empirically test the hard-to-borrow model of Avellaneda and Lipkin (2009) where asset prices jump as result of ``buy-in" procedures. The model is estimated using an extent version of simulated maximum likelihood (SML) for a selected group of Leveraged ETF, mainly short LETFs, because these instruments have been sporadically hard-to-borrow and are liquids. In general we do not find enough statistical evidence supporting that hard-to-borrow effect impacts LETFs prices. On the other hand, we did find statistical evidence supporting the jump-diffusion model for some Leveraged ETFs.

Date: 2019
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