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An analysis of over-the-counter and centralized stock lending markets

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  • Huszár, Zsuzsa R.
  • Prado, Melissa Porras

Abstract

We provide new insights about centralized and OTC stock lending in the context of Tokyo Stock Exchange listed stocks from July 2006 to December 2009. We find that not only the demand drivers in the two markets are significantly different but also the pricing efficiency implications of the alternative markets are different. Specifically, we find that higher OTC stock lending activity is associated with greater pricing efficiency and better liquidity. The benefits of the centralized market on average is less clear, but when the OTC market is constrained, it is shown to relax short-sale constraints and improve liquidity.

Suggested Citation

  • Huszár, Zsuzsa R. & Prado, Melissa Porras, 2019. "An analysis of over-the-counter and centralized stock lending markets," Journal of Financial Markets, Elsevier, vol. 43(C), pages 31-53.
    • Handle: RePEc:eee:finmar:v:43:y:2019:i:c:p:31-53
    DOI: 10.1016/j.finmar.2018.10.004
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    Cited by:

    1. Cereda, Fábio Saia & Chague, Fernando & De-Losso, Rodrigo & Genaro, Alan & Giovannetti, Bruno Cara, 2020. "The effects of price transparency in OTC equity lending markets: Evidence from a loan fee benchmark," Textos para discussão 524, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    2. Cereda, Fábio & Chague, Fernando & De-Losso, Rodrigo & Genaro, Alan & Giovannetti, Bruno, 2022. "Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark," Journal of Financial Economics, Elsevier, vol. 143(1), pages 569-592.
    3. Alok Dixit & Vipul & Shivam Singh, 2019. "Options pricing and short‐selling in the underlying: Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(10), pages 1250-1268, October.
    4. Arseny Gorbenko & Marcin Kacperczyk, 2023. "Short Interest and Aggregate Stock Returns: International Evidence," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 13(4), pages 691-733.
    5. Truong X Duong & Zsuzsa R Huszár & Ruth S K Tan & Weina Zhang, 2017. "The Information Value of Stock Lending Fees: Are Lenders Price Takers?," Review of Finance, European Finance Association, vol. 21(6), pages 2353-2377.

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    More about this item

    Keywords

    Stock lending; Pricing efficiency; Short selling;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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