Connecting Two Markets: An Equilibrium Framework for Shorts, Longs and Stock Loans

Blocher, Jesse; Reed, Adam V.; Wesep, Edward Dickersin Van

doi:10.2139/ssrn.1551582

Cited by 23 publications

(26 citation statements)

References 45 publications

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“…Finally, UTILIZATION and FEE both increase in the 20 days prior to the record date. This result adds to Blocher, Reed, and Van Wesep (), who argue that shifts in supply matter only for firms “On Special,” by revealing that supply shifts become important even at relatively low levels of utilization.…”

Section: Datasupporting

confidence: 66%

The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market

Aggarwal¹,

Saffi²,

Sturgess

2015

The Journal of Finance

140

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This paper investigates voting preferences of institutional investors using the unique setting of the securities lending market. Investors restrict lendable supply and/or recall loaned shares prior to the proxy record date to exercise voting rights. Recall is higher for investors with greater incentives to monitor, for firms with poor performance or weak governance, and for proposals where returns to governance are likely higher. At the subsequent vote, recall is associated with less support for management and more support for shareholder proposals. Our results indicate that institutions value their vote and use the proxy process to affect corporate governance.Understanding institutional investors' preferences regarding governance is important for firms that are trying to attract new investors and for policy makers considering the regulation of governance mechanisms. However, the

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Section: Datasupporting

confidence: 66%

The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market

Aggarwal¹,

Saffi²,

Sturgess

2015

The Journal of Finance

140

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“…In financial markets in which trade is delayed by search, supply shocks cause price impacts and reversals. For example, delayed access to shares in the equity lending market are shown by Blocher, Reed, and Van Wesep (2010) to lead to price elevations of around 1% around dividend dates, which subsequently decay. It takes time to locate suitable lenders of securities, which conveys bargaining power to lenders of shares that are in high demand by borrowers.…”

Section: Traded Delayed By Searchmentioning

confidence: 99%

Presidential Address: Asset Price Dynamics with Slow‐Moving Capital

Duffie

2010

The Journal of Finance

728

318

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I describe asset price dynamics caused by the slow movement of investment capital to trading opportunities. The pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade, such as search costs for trading counterparties or time to raise capital by intermediaries. I discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions, which subsided afterward. After presenting examples of price reactions to supply shocks in normal market settings, I offer a simple illustrative model of price dynamics associated with slow-moving capital due to the presence of inattentive investors.I ADDRESS THE IMPLICATIONS for asset price dynamics of the apparent slow movement of investment capital to trading opportunities. The arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets, for example an electronic limit-order-book market for equities, or by months in other markets, such as that for catastrophe risk insurance. Accordingly, prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital (and thus risk-bearing capacity) that is immediately available to absorb a shock on short notice. Such a price impact is substantially reversed over time as additional capital becomes available. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement, such as search costs for trading * Darrell

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“…Consistent with US institutional restrictions, we require that stock must be borrowed before it can be sold short. 15 Borrowing costs are determined in equilibrium, and are the price at which the supply of shares are equal to the demand from agents (as in Blocher, Reed, and Van Wesep, 2013). The supply is determined by the costs of nding new shares to borrow.…”

Section: The Cost Of Borrowing Sharesmentioning

confidence: 99%

“…6 Miller's idea has been approached empirically by utilizing short interest to proxy for short-sale constraints or costs, including Figlewski (1981), Asquith and Meulbroek (1996), Desai, Ramesh, Thiagarajan, and Balachandran (2002), or, alternatively, using data on loan fees and/or loan quantities (Jones and Lamont, 2002, Cohen, Diether, and Malloy, 2007, Blocher, Reed, and Van Wesep, 2013. Asquith, Pathak, and Ritter (2005) consider institutional ownership to proxy for supply and short-interest for demand.…”

mentioning

confidence: 99%

“…Due, Gârleanu, and Pedersen (2002) explicitly model the complex search and matching process on the lending market. Our approach is to model the lending market as a market where supply and demand determine equilibrium quantities in the same way as on the stock or a standard goods market, like in the static model of Blocher, Reed, and Van Wesep (2013). This approximation of the complex search process for borrowing stocks in the real world allows us to endogenize borrowing costs in a simple way.…”

mentioning

confidence: 99%

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