Why Do Different Short-sellers Pay Different Loan Fees? A Market-wide Analysis

Fernando Chague and Rodrigo De-Losso, Alan De Genaro, Bruno Giovannetti
Authors registered in the RePEc Author Service: Rodrigo De-Losso and Bruno Cara Giovannetti

No 2015_17, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: High loan fees generate short-selling constraints and, therefore, reduce price efficiency. Despite the importance of loan fees, empirical evidence on their determinants is scarce. Using a market-wide deal-by-deal data set on the Brazilian equity lending market which uniquely identifies borrowers, brokers, and lenders, we are able to construct a proxy of search costs at the borrower-stock-day level. We find that - for the same stock, on the same day - borrowers with higher search costs pay significantly higher loan fees. Our results suggest that regulators should encourage the use of a centralized lending platform to reduce search costs in the lending market.

Keywords: short sale constraints; equity lending; borrower search costs; OTC (search for similar items in EconPapers)
JEL-codes: G12 G29 (search for similar items in EconPapers)
Date: 2015-08-10
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