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Equity lending markets and ownership structure

Author

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  • Saffi, Pedro A.C.

    () (IESE Business School)

  • Sturgess, Jason

    (McDonough School of Business)

Abstract

Using proprietary data on equity lending supply, loan fees and quantities, we examine the link between institutional ownership structure and the market for equity lending and stock prices. We find that both total institutional ownership and ownership concentration (measured by the Herfindahl index, single largest holding and number of investors) are important determinants of equity lending supply and short sale constraints. More concentrated ownership structures increase short sale constraints (including loan fees, recall risk and arbitrage risk) and force arbitrageurs to decrease demand for equity borrowing and demand greater compensation for borrowing stock. The results suggest that the impact of institutional ownership structure in the equity lending market may create limits to arbitrage.

Suggested Citation

  • Saffi, Pedro A.C. & Sturgess, Jason, 2009. "Equity lending markets and ownership structure," IESE Research Papers D/836, IESE Business School.
  • Handle: RePEc:ebg:iesewp:d-0836
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    File URL: http://www.iese.edu/research/pdfs/DI-0836-E.pdf
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    Cited by:

    1. Guo, Hui & Qiu, Buhui, 2014. "Options-implied variance and future stock returns," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 93-113.

    More about this item

    Keywords

    Equity lending markets; short selling; ownership structure; lending supply;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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