Short selling frictions, investor behavior and stock returns

Resumo

This dissertation consists of three empirical essays, the first two investigate how frictions in the stock lending market affect the spot market. The last one uses transaction level data to assess the differences in trade performance between retail investors, domestic funds, firms and foreign investors. The first essay shows that increases in stock loan fees have strong causal impact on stock prices. We identify these effects by exploiting exogenous variation in loan fees generated by a tax arbitrage opportunity that existed in Brazil from 1995-2014. Around the record date of IoNE-dividend events, tax arbitrageurs borrowed stocks crowding out short-sellers. We use that as a source of repeated exogenous variation of borrowing fees in short-selling transactions. The second essay shows that there is substantial dispersion in stock loan fees, even for lending contracts for the same stock, traded in the exact same date. This dispersion is a result of the over-the-counter structure of the stock loan market. To the best of our knowledge, we are the first to characterize the fee dispersion, but we also show that stocks with larger fee dispersion have lower future returns. In fact, loan fee dispersion is the best predictor of the cross-section of returns when compared to traditional short-sale related measures frequently used in the literature. Importantly, the existence of loan fee dispersion is a direct consequence of the current market structure and could be mitigated by an increase in market transparency. The third essay reports the results of an exploratory data analysis of the Brazilian stock market. We use an unique dataset, with daily information on all stock trading activity in Brazil from 2012 to 2017. A quantitative description of the number of active investors and changes in trade activity through time is provided. Finally, we show that the trades made be retail investors under-perform the ones made by the remaining investor categories. That could be an indicative that retail investors are slower at processing public information or have inferior access to private information and, therefore, make worse and less informed trades.

Ficha do documento

Tipo

Tese

Ano

2019

Instituição

Fundação Getulio Vargas

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.fgv.br:10438/27760

Temas

EconomiaGovernança

Palavras-chave

Short salesSecurity lendingOverpricingPredictability of returnsShort sale constraintsShort-selling restrictionsTax arbitrageNatural experimentInvestor behaviorTrade performanceEconomiaVenda a descoberto (Finanças)Ações (Finanças)Empréstimo de títulosInvestidores (Finanças) - Conduta