Well-connected short-sellers pay lower loan fees: A market-wide analysis

Chague, Fernando; De-Losso, Rodrigo; Genaro, Alan De; Giovannetti, Bruno

doi:10.1016/j.jfineco.2016.12.011

Cited by 31 publications

(11 citation statements)

References 23 publications

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“…The results found do not confirm the previous studies that show the existence of short-sale constraints in Brazil (Bonomo et al, 2015;Chague et al, 2014Chague et al, , 2017. We believe that this difference results from the limited size of the studied series compared to international works.…”

Section: Resultscontrasting

confidence: 95%

“…The results presented do not follow the evidences existing in the Brazilian market (Bonomo et al, 2015;Chague et al, 2014Chague et al, , 2017, that is, it was not possible to confirm the existence of short-sale constraints through the analysis of Long-Short anomaly-based strategies. It must be said that the limited size of the studied series compared to international studies may have made it difficult to compare the Long and Short positions, periods of optimism and pessimism.…”

Section: Portfolio Performance Followed By Periods Of Optimism and Pecontrasting

confidence: 77%

“…After pessimistic periods, only five portfolios showed positive returns, and only four anomalies provided negative return on the difference between positive and negative returns. In addition, in no situation did the Short position show statistically significant returns, contradicting the findings of Stambaugh et al (2012) and, consequently, by analysis of the behavior of Long-Short anomaly-based portfolios and periods of optimism and pessimism, it is not possible to confirm the existence of short-sale constraints, according to previously documented evidences in Brazil (Bonomo et al, 2015;Chague et al, 2014Chague et al, , 2017.…”

Section: Portfolio Performance Followed By Periods Of Optimism and Pementioning

confidence: 67%

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Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Xavier

Machado

2017

BAR, Braz. Adm. Rev.

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This study examined the relationship between investor sentiment and value anomalies in Brazil. In addition, it analyzed if pricing deviations caused by investors with optimistic views are different from those caused by pessimistic investors. The sample included all non-financial firms listed on the B3 (Brasil, Bolsa, Balcão) stock exchange from July 1999 to June 2014. We used the Principal Component Analysis multivariate technique to capture the component common to four different proxies for investor sentiment. The study empirically tested the index series and its variation on the return series of Long-Short portfolios of 12 anomaly-based strategies. The study found that the measure of the sentiment index had a partial explanatory power for the anomalies only when included in the CAPM. Yet, when using the index sentiment changes as an explanatory variable, the study found a relationship with future returns, robust to all risk factors. Thus, it is possible to relate investor sentiment index to anomaly-based portfolio returns. When analyzing average returns after optimistic and pessimistic periods, the values we found in our empirical test were not statistically significant enough to infer the possible existence of short-sale constraints.

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Section: Resultscontrasting

confidence: 95%

Section: Portfolio Performance Followed By Periods Of Optimism and Pecontrasting

confidence: 77%

Section: Portfolio Performance Followed By Periods Of Optimism and Pementioning

confidence: 67%

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Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Xavier

Machado

2017

BAR, Braz. Adm. Rev.

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“…The fixed income segment, similarly to the equity segment, operates primarily as a non-transparent oligopolistic OTC market, with about a dozen key prime brokers or agents connecting the supply and demand sides. This setting likely gives rise to market inefficiencies, where less connected borrowers are known to receive inferior borrowing terms, as recently documented by Chague et al (2016) among others. 1 The extant securities lending market studies tend to focus on the borrower side in the equity segment because the borrowers are short sellers, who play an economically important role in the price discovery process in the stock market (Boehmer and Wu, 2013).…”

Section: Introductionmentioning

confidence: 91%

“…In fact, this gives rise to high search costs, moreover, less connected borrowers or borrowers with limited bargaining power are often unable to arrange transactions to execute their trades (Duffie et al 2002;2005;Kolasinski et al 2013). These inefficiencies are well-documented in the equity segment of the securities lending market because they cause binding short-sale constraints, which negatively affect market quality and market efficiency (e.g., Boehmer and Wu, 2013;Chague et al 2017;Saffi and Sigurdsson, 2011). Thus far, these inefficiencies have not attracted much attention in the fixed income segment.…”

Section: Introduction To Securities Lending From the Lenders' Perspecmentioning

confidence: 99%

The Pricing Implications of the Oligopolistic Securities Lending Market: A Beneficial Owner Perspective

Huszár

Simon

2018

SSRN Journal

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After the global financial crisis, institutions have gradually moved from the unsecured interbank lending market to the repo markets to cover their funding needs. At the same time, while the supply of high quality liquid assets (HQLA) began to shrink with banks' reduced risk taking and window-dressing, the demand grew with the shift towards derivative clearing via central counterparties. This created interest in large-scale collateral swaps, upgrading low quality assets to fixed income HQLA in the securities lending market. These market forces and lenders' growing awareness to generate alternative income from passive assets through securities lending gave rise to a multi-trillion dollar fixed income segment in the global securities lending market. In this study, we focus on the primary and secondary market for German treasuries and discuss the negative welfare implications arising from the still nontransparent oligopolistic securities lending market. We first show that in the primary market, prime broker bidding group members may artificially inflate the prices of HQLA in search of scarce safe assets, disadvantaging long-term investors, such as pension funds and insurance firms, who have to gain access to these assets. More importantly, in examining the pricing implications in the secondary market, we show that prime brokers acting as lending agents for pension funds may exploit their information advantage, and do not fully compensate these lenders with limited bargaining power. Overall, we suggest that the artificially depressed yields for safe European sovereign bonds in combination with the inherent inefficiencies in the securities lending market have important negative welfare implications for the European pension system. Pension funds and insurance firms struggle to generate returns or alternative lending income from securities lending, while on the other hand being responsible for preserving wealth and managing retirement savings for the majority of European citizens. Our results have important policy implications. We suggest that pension funds and insurance firms need to become more proactive by either managing their own lending desk or by lobbying for more regulatory oversight and greater transparency to improve their bargaining power. From a welfare perspective, we suggest that it is inefficient to restrict pension funds to purchase treasuries in the secondary market through prime broker-dealers because this exposes them to significant direct and indirect costs, which in the end are borne by the pensioners.

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Short Selling Activity and Effects on Financial Markets and Corporate Decisions

Guo

2021

Encyclopedia of Finance

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Well-connected short-sellers pay lower loan fees: A market-wide analysis

Cited by 31 publications

References 23 publications

Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

The Pricing Implications of the Oligopolistic Securities Lending Market: A Beneficial Owner Perspective

Short Selling Activity and Effects on Financial Markets and Corporate Decisions

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