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Learning by lending securities

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  • Nurisso, George C.

Abstract

Short sellers convey negative information to securities lenders when borrowing shares. I model how this information generates novel interactions between institutional investors’ lending and trading decisions. Lower lending fees improve information quality by facilitating more shorting, but also make it less costly for lenders to strategically recall shares to enhance their trading profits. Lenders may then need to raise fees to commit not to recall shares and thereby attract short sellers. Conversely, index fund lenders cannot trade on lending market information. This restriction enables them to attract greater shorting demand and potentially improve price efficiency—despite charging higher fees.

Suggested Citation

  • Nurisso, George C., 2026. "Learning by lending securities," Journal of Financial Economics, Elsevier, vol. 178(C).
    • Handle: RePEc:eee:jfinec:v:178:y:2026:i:c:s0304405x26000085
    DOI: 10.1016/j.jfineco.2026.104237
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    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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