Well-Connected Short-Sellers Pay Lower Loan Fees: A Market-Wide Analysis

75 Pages Posted: 29 Jul 2015 Last revised: 19 Sep 2019

See all articles by Fernando Chague

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rodrigo De-Losso

University of São Paulo (USP) - Department of Economics

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: June 7, 2016

Abstract

High loan fees generate short-selling constraints and, therefore, reduce price efficiency. Despite the importance of loan fees, empirical evidence on their determinants is scarce. Using a market-wide deal-by-deal data set on the Brazilian equity lending market which uniquely identifies borrowers, brokers, and lenders, we are able to construct a proxy of search costs at the borrower-stock-day level. We find that - for the same stock, on the same day - borrowers with higher search costs pay significantly higher loan fees. Our results suggest that regulators should encourage the use of a centralized lending platform to reduce search costs in the lending market.

Keywords: loan fees, search-costs, lending market, short-selling restrictions

JEL Classification: G10, G12

Suggested Citation

Chague, Fernando and De-Losso, Rodrigo and Genaro, Alan and Giovannetti, Bruno, Well-Connected Short-Sellers Pay Lower Loan Fees: A Market-Wide Analysis (June 7, 2016). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2637061

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://https://sites.google.com/site/fchague/

Rodrigo De-Losso

University of São Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-010
Brazil
551130930957 (Phone)

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration ( email )

Sao Paulo
BRAZIL

Bruno Giovannetti (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

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