Equity Lender Base and Limits to Arbitrage: Position-Level Evidence from Mutual Funds
30 Apr 2024
15:00 -16:30
Times are shown in local time.
Open to: All
Room W2.02 (Cambridge Judge Business School)
Trumpington St
Cambridge
CB2 1AG
United Kingdom
Join our Finance seminar
Speaker: Dr Xi Dong, Baruch College, City University of New York
About the seminar topic
We provide the first comprehensive analysis on equity lender base utilising newly available fund-stock level lending data. We find that short sellers predominantly borrow from a small set of repeated lenders whose composition differs across stocks. We argue that this lender base structure indicates inelastic lending supply, which limits arbitrage.
When existing lenders exit, short sellers struggle to find replacement lenders, even though conventional lending supply measures appear slack. Consequently, lending fees surge, exacerbating mispricing in the equity market. Ex ante, risks implied by lender concentration are priced. Our results suggest that lending-side frictions are an important source of market inefficiency.
Speaker bio
Xi Dong is an Assistant Professor of Finance at Baruch College, City University of New York. Before joining Baruch, Xi was an Assistant Professor at INSEAD and a Strategist at State Street Global Advisors. Xi’s research interests centre around how market frictions shape finance with most of his work concerning the interaction of 3 areas: asset pricing, trading and information.
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