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Private Information, Securities Lending, and Asset Prices

Author

Listed:
  • Mahdi Nezafat
  • Mark Schroder

Abstract

We study the role of private information in the equity lending market in a rational expectations model with endogenous loan fees. When all investors are privately informed, an increase in information precision reduces the fee by increasing trade aggressiveness and decreasing demand dispersion. However, when some investors are uninformed, the information asymmetry tends to increase the fee, and, thus, the overall effect of an increase in precision is ambiguous. We show that the fee can be incrementally informative given the stock price and that fee opaqueness tends to increase the fee but has an ambiguous effect on the stock price.

Suggested Citation

  • Mahdi Nezafat & Mark Schroder, 2022. "Private Information, Securities Lending, and Asset Prices," The Review of Financial Studies, Society for Financial Studies, vol. 35(2), pages 1009-1063.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:2:p:1009-1063.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab043
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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