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

Joseph E. Engelberg (), Richard B. Evans (), Greg Leonard (), Adam V. Reed () and Matthew C. Ringgenberg ()
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Joseph E. Engelberg: University of California, San Diego, La Jolla, California 92093
Richard B. Evans: University of Virginia, Charlottesville, Virginia 22903
Greg Leonard: Virginia Tech, Blacksburg, Virginia 24061
Adam V. Reed: University of North Carolina, Chapel Hill, North Carolina 27599
Matthew C. Ringgenberg: University of Utah, Salt Lake City, Utah 84112

Management Science, 2025, vol. 71, issue 7, 5529-5551

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 with 102 other anomalies and other short-selling measures, the loan fee anomaly has the highest monthly long-short return (4.01%), the highest monthly Sharpe Ratio (0.66), and, unlike other anomalies, exhibits strong persistence throughout the sample. Although prior work has shown that existing anomalies reside in high loan fee stocks, we find that 42% 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 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:7:p:5529-5551

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