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The Loan Fee Anomaly: A Short Seller’s Best Ideas

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  • Joseph E. Engelberg

    (University of California, San Diego, La Jolla, California 92093)

  • Richard B. Evans

    (University of Virginia, Charlottesville, Virginia 22903)

  • Greg Leonard

    (Virginia Tech, Blacksburg, Virginia 24061)

  • Adam V. Reed

    (University of North Carolina, Chapel Hill, North Carolina 27599)

  • Matthew C. Ringgenberg

    (University of Utah, Salt Lake City, Utah 84112)

Abstract

We find that equity loan fees, which have been largely ignored by the anomalies literature, are the best predictor of cross-sectional returns. When compared with 102 other anomalies and other short-selling measures, the loan fee anomaly has the highest monthly long-short return (4.01%), the highest monthly Sharpe Ratio (0.66), and, unlike other anomalies, exhibits strong persistence throughout the sample. Although prior work has shown that existing anomalies reside in high loan fee stocks, we find that 42% of loan fee outperformance is due to unique information not contained in other anomalies. Future papers that examine cross-sectional predictors of returns should include the single most effective predictor: loan fees.

Suggested Citation

  • Joseph E. Engelberg & Richard B. Evans & Greg Leonard & Adam V. Reed & Matthew C. Ringgenberg, 2025. "The Loan Fee Anomaly: A Short Seller’s Best Ideas," Management Science, INFORMS, vol. 71(7), pages 5529-5551, July.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:7:p:5529-5551
    DOI: 10.1287/mnsc.2023.00152
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