Securities lending and information acquisition

Stefan Greppmair, Stephan Jank, Pedro A. C. Saffi and Jason Sturgess

No 08/2024, Discussion Papers from Deutsche Bundesbank

Abstract: Using microdata on stock-level lending positions from German mutual funds, we show that active funds use the equity lending market to obtain information about short sale demand. Funds reduce long positions in response to these demand signals, which allows fund managers to front-run public disclosure of big short positions and avoid future losses. Fund managers exploit this information advantage across funds they manage, but do not share it within their fund family, consistent with short demand signals providing an information advantage. Our results suggest a new motive for securities lending and an information aggregation role for the equity lending market.

Keywords: Equity lending markets; mutual funds; short sales; short interest; price revelation; public disclosure (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 G18 (search for similar items in EconPapers)
Date: 2024
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