A Study of the Relationship between Securities Lending and Stock Price
Date Issued
2011
Date
2011
Author(s)
Chen, Chien-Hung
Abstract
This research mainly adopts vector autoregression model to conduct an empirical analysis of the relationship between securities lending transactions and stock price changes. Four time-series data used in this study are stock price, daily volume of securities lending, daily volume of selling loaned securities and daily average borrowing fees. We not only explore all the variables through the Granger causality test to identify whether there exist causal relationship, but also examine impulse response function analysis to understand the stock price reaction function of the deferred effect by the change of securities lending transactions.
The result indicates that both securities lending transactions and selling of loaned securities have no significant correlation with the stock price changes. The findings is not the same as the results from this study collected empirical evidence of foreign literature that SBL transactions have a negative impact on stock prices. Our empirical result directly confirms the claims of Taiwan Stock Exchange that securities lending transactions are not equal to shorting selling and that securities lending transactions have limited impact on the stock price. The reasons may be that there are strict selling restrictions in the Taiwan securities lending market, and the regulations require borrowers to put limited types of collateral and higher initial margin for securities lending, thus reducing the impact on the ability of stock prices.
Subjects
Securities lending
short selling
time series
vector autoregression model
Granger causality test
impulse response function analysis
Type
thesis
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