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Fund Performance and Equity Lending: Why Lend What You Can Sell?

Richard Evans, Miguel Ferreira () and Melissa Porras Prado ()

Review of Finance, 2017, vol. 21, issue 3, 1093-1121

Abstract: The dramatic increase in the percentage of mutual funds lending equities suggests that lending fees are an increasingly important source of income for investment advisors. We find that funds that lend equities underperform otherwise similar funds in spite of lending income. The effect of lending is concentrated in funds that cannot act on the short-selling signal due investment restrictions set by the fund family to diversify their fund offerings across styles. Our findings suggest that the family organization explains why fund managers lend, rather than sell, stocks with short selling demand.

Keywords: Mutual funds; Index funds; Performance; Security lending (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G23 (search for similar items in EconPapers)
Date: 2017
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Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano

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