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Market-Based Solutions to Vital Economic Issues
Research
Oct 7, 2020

The Loan Fee Anomaly: A Short Seller’s Best Ideas

Abstract

We find that equity loan fees are the best predictor of cross-sectional returns. When compared to 102 other anomalies, the loan fee anomaly has the highest monthly long-short return (1.17%), has the highest monthly Sharpe Ratio (0.40), and unlike other anomalies, exhibits strong persistence throughout the sample. We show that 28% of the loan fee anomaly can be explained by its selective exposure to the best performing anomalies, while 72% is due to unique information possessed by short sellers. Our results show that short sellers’ willingness to pay prices the cross-section of stocks and these “best ideas” outperform other anomalies.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 


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