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The Effects of Stock Lending on Security Prices: An Experiment





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    • Kaplan and Moskowitz are with the University of Chicago Booth School of Business and NBER, and Sensoy is with The Ohio State University. We thank Jack Bao, Itzhak Ben-David, Lauren Cohen, Andrea Frazzini, Cam Harvey (Editor), John Heaton, Kewei Hou, Charles Jones, Christopher Malloy, Gregor Matvos, David Musto, Les Nelson, Oguzhan Ozbas, Lasse Pedersen, Bill Pridmore, Adam Reed, Savina Rizova, Paul Schultz, Amit Seru, Chester Spatt, Ingrid Werner, an anonymous Associate Editor, three anonymous referees, and seminar and conference participants at Columbia University, Duke University, Indiana University, Ohio State University, University of North Carolina, University of Chicago, University of Oxford, the 2010 fall Q Group meeting, the 2011 RMA/UNC conference on securities lending, the 2011 AFA Meeting, the 2011 SIFR asset pricing conference, and the 2011 Wharton conference in honor of Marshall Blume for helpful comments and discussions. During the periods of the experiment, Kaplan served on the board of trustees of the mutual funds managed by the money manager studied in this paper. Kaplan and Moskowitz thank the Initiative on Global Markets and CRSP at the University of Chicago Booth School of Business for financial support.


We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high loan fee stocks in the manager's portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent, and the second, from June 5 to September 30, 2009, with over $250 million of securities lent. While the supply shocks significantly reduce market lending fees and raise quantities, we find no evidence that returns, volatility, skewness, or bid–ask spreads are affected. The results provide novel evidence on the impact of shorting supply and do not indicate any adverse effects on stock prices from securities lending.