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Future Lending Income and Security Value

Published online by Cambridge University Press:  13 November 2015

Melissa Porras Prado
Melissa Porras Prado*
Affiliation:
melissa.prado@novasbe.pt, Nova School of Business and Economics, INOVA, Universidade Nova de Lisboa, Campus de Campolide, 1099-032 Lisboa, Portugal.
*
*Corresponding author: melissa.prado@novasbe.pt
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Abstract

I test the Duffie, Gârleanu, and Pedersen hypothesis that security prices incorporate expected future securities lending income. To determine whether institutional investors anticipate gains from future lending of securities, I examine their trading behavior around loan-fee increases. The evidence suggests that institutions buy shares in response to an increase in lending fees, and that this could explain the premium associated with high-lending-fee stocks. Expected future lending income affects stock prices, although the effect seems to be attenuated by the negative information that arises from short selling.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 4 , August 2015 , pp. 869 - 902
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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