A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market





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    • *University of Washington, University of North Carolina, and Washington University in St. Louis, respectively. The authors thank Robert Battalio, Darrell Duffie, Nicolae Gârleanu, Jennifer Huang, David Musto, Lasse Pedersen, an anonymous referee, the Editors, and seminar participants at the American Finance Association Conference, Barclays Global Investors, the Consortium for Financial Economics and Accounting Conference, the European Finance Association Conference, the IIROC-DeGroote Conference on Market Structure, Texas A&M, the University of Oregon's Institutional Asset Management Conference, the University of Virginia, and the University of Washington. We are grateful for financial support from the Q Group. Our data provider made this work possible and provided invaluable advice over the course of numerous discussions. Finally, we thank William Frohnhoefer for providing institutional details.


Using unique data from 12 lenders, we examine how equity lending fees respond to demand shocks. We find that, when demand is moderate, fees are largely insensitive to demand shocks. However, at high demand levels, further increases in demand lead to significantly higher fees and the extent to which demand shocks impact fees is also related to search frictions in the loan market. Moreover, consistent with search models, we find significant dispersion in loan fees, with this dispersion increasing in loan scarcity and search frictions. Our findings imply that search frictions significantly impact short selling costs.