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Who is buying and (not) lending when shorts are selling?

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  • Blocher, Jesse
  • Zhang, Chi

Abstract

Stock lending markets are unique because stock buyers become potential stock lenders. During periods of high short demand, loan supply should expand as some new buyers of loaned shares lend them. Using instrumental variables, we find instead that loan supply contracts: during times of high short demand, the marginal buyer lends stock at a lower rate than the average seller. We find that this puzzling result is concentrated among closely held stocks with high disagreement among investors, high price impact measures, and lottery-like returns. Thus, non-lending buyers may believe that withholding shares from short sellers could enhance their expected returns.

Suggested Citation

  • Blocher, Jesse & Zhang, Chi, 2022. "Who is buying and (not) lending when shorts are selling?," Journal of Financial Markets, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finmar:v:57:y:2022:i:c:s1386418120300847
    DOI: 10.1016/j.finmar.2020.100615
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    References listed on IDEAS

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    More about this item

    Keywords

    Securities lending; Short selling; Disagreement; Lottery stocks;
    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
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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