Atmaz, A, Basak, S and Ruan, F (2024) Dynamic equilibrium with costly short-selling and lending market. Review of Financial Studies, 37 (2). pp. 444-506. ISSN 0893-9454
Abstract
We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to shorting fee and predicts stock returns negatively. Higher short-selling risk can be associated with lower stock returns and less short-selling activity. Stock volatility is increased under costly short-selling. An application to GameStop episode yields implications consistent with observed patterns.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
© The Author(s) 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
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Date Deposited: | 24 Aug 2023 12:54 |
Date of first compliant deposit: | 26 Jun 2023 |
Subjects: |
Investment appraisal Investment theory Risk |
Last Modified: | 05 Oct 2024 00:44 |
URI: | https://lbsresearch.london.edu/id/eprint/2933 |
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