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Topics in Quantitative Finance Individual Presentation

Topics in Quantitative Finance Individual Presentation. The Effects of Stock Lending on Security Prices: An Experiment Steven N. KAPLAN, Tobias J. MOSKOWITZ, and Berk A. SENSOY Dongwei XU October 22 nd 2013. Agenda. 1. Authors 2. Paper Motivation; Methodology 3. Experiment

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Topics in Quantitative Finance Individual Presentation

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  1. Topics in Quantitative Finance Individual Presentation The Effects of Stock Lending on Security Prices: An Experiment Steven N. KAPLAN, Tobias J. MOSKOWITZ, and Berk A. SENSOY Dongwei XU October 22nd 2013

  2. Agenda 1. Authors 2. Paper Motivation; Methodology 3. Experiment Design & Data; Results; Implication 4. Understanding Enlightenment; Question

  3. Authors Steven N. KAPLAN Tobias J. MOSKOWITZ Booth School of Business, University of Chicago National Bureau of Economic Research Berk A. SENSOY Ohio State University

  4. Paper Motivation The impact of stock lending The prediction of money manager’s strategy

  5. Paper Methodology Control Variable Method Difference-in-differences Method Regression

  6. Experiment Design & Data 2008 2009 09/05 09/17 10/03 06/05 09/30 | | | | | |Lending | Recall || Lending | |Phase 1 | | Phase 2 |

  7. Experiment Design & Data Revenue Stocks(138) Nonrevenue Stocks 2/3 Available (Treated) 1/3 Withheld (Control)

  8. Experiment Results the effects of increasing the loan supply of shares for the treated (available) firms relative to the control (withheld) firms Loan Fees and Quantities Returns Volatility, Skewness, and Bid–Ask Spreads

  9. Experiment Results Loan Fees and Quantities The experiment had a measureable and sizeable impact on market loan prices and quantities.

  10. Experiment Results Returns No evidence shows that supply increases in the shorting market create negative price pressure for the underlying stock. Example: Cross-Sectional Return Tests

  11. Example Cross-Sectional Return Tests Estimate cross-sectional regressions of stock-level average daily returns during the lending and recall periods on stock characteristics and potential loan supply interacted with the treatment and control of lending availability.

  12. Example

  13. Experiment Results Volatility, Skewness, and Bid–Ask Spreads The lack of consistency between the two lending period results The recall period results cautions against strong conclusions

  14. Implication Theoretical Implications Changes in loan supply have significant effects on loan fees and quantities, but no adverse effects on security prices. Investment Management Earn meaningful lending fees to enhance returns without generating adverse effects on the value of their holdings. Financial Regulation Regulation designed to restrict loan supply can NOT support stock prices.

  15. Understanding Enlightenment Regression method Real-world scenario

  16. Understanding Question negative changes to skewness during the lending period a reversal (positive changes) in the recall period

  17. Question

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