@article{0a9d3672e2c14ad7a245d3763c7a4ca2,
title = "Is There a Risk Premium in the Stock Lending Market? Evidence from Equity Options",
abstract = "Recent research argues that uncertainty about future stock borrowing fees hinders short-selling, and this risk explains the performance of short strategies. One possible mechanism is that borrowing fee risk carries a risk premium. Since the present value of the uncertain borrowing fee is reflected in options prices, the difference between option-implied and realized fees estimates this premium. We find that the risk premium is small. Moreover, if the risk premium is substantial, it should be reflected in the returns to short-selling stock after adjusting for stock borrowing fees. However, borrowing fee risk does not predict fee-adjusted returns.",
author = "Dmitriy Muravyev and Pearson, {Neil D.} and Pollet, {Joshua M.}",
note = "Dmitriy Muravyev is with the Department of Finance, Michigan State University and is a CDI Associate Research Fellow with the Canadian Derivatives Institute. Neil D. Pearson is with the Department of Finance, University of Illinois at Urbana‐Champaign and is a CDI Research Fellow with the Canadian Derivatives Institute. Josua M. Pollet is with the Department of Finance, University of Illinois at Urbana‐Champaign. We greatly appreciate comments from the editor Stefan Nagel and two anonymous referees; Francisco Barillas; Ekkehart Boehmer; Jie Cao; Ruslan Goyenko; Zsuzsa Reka Husz{\'a}r; Scott Murray; Jeffrey Pontiff; Adam Reed; Matthew Ringgenberg; Aurelio Vasquez; and seminar and conference participants at Boston College, Georgia State University, HEC Montreal, ITAM, Nanyang Technological University, National University of Singapore, Temple University, Tenth Annual Risk Management Conference (RMI and NUS), 27 Annual Conference on Financial Economics and Accounting (2016), 2017 Jackson Hole Finance Conference, 5 HEC‐McGill Winter Finance Workshop (2017), SFS Cavalcade (2017), FIRS (2017), CICF (2017), and AFA (2018) for their helpful comments and suggestions. We gratefully acknowledge research support from the Canadian Derivatives Institute (CDI). We also thank Markit for providing the equity lending data. Markit had the right to, and did, review a draft of the article prior to its submission. In addition to the support provided for this research, Muravyev and Pearson acknowledge other research support provided by the CDI. The authors do not have any conflicts of interest to disclose as defined in {\textquoteright}s disclosure policy. th th The Journal of Finance",
year = "2022",
month = jun,
doi = "10.1111/jofi.13129",
language = "English (US)",
volume = "77",
pages = "1787--1828",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "3",
}