| Abstract: |
We investigate market power in U.S. equity securities lending and assess its effects on distinct investor groups. Our data reveal high market concentration, non-competitive fees, and an excess supply of lendable stock inventory throughout the cross-section. Motivated by these observations, we present a dynamic asymmetric-information model that sheds light on the underlying frictions maintaining market power in this setting. Somewhat paradoxically, the prevailing market structure, intermediated by large institutional lenders accruing substantial fees, is more advantageous to short sellers of illiquid stocks than a centralized, competitive market would be. Across stocks, fee income raises lenders’ valuations from 1.5% to 100%.
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Biography:
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Ron Kaniel is the Jay S. and Jeanne P. Benet Professor of Finance at the Simon Business School, University of Rochester. Kaniel is an Advisory and former Co-Editor of the Journal of Financial Economics, and is one of the founding editors of Finance Theory Insights. He has served as the President of the Finance Theory Group. He is a Research Fellow of the Center for Economic Policy Research, an honorary visiting professor at Gothenburg University, and a special term visiting professor at Fanhai International School of Finance, Fudan University. Before joining Simon, Kaniel was a faculty member at Duke University and the University of Texas at Austin, and was a visiting scholar at Stanford University. He received a Ph.D. in finance in 1999 from the Wharton School of the University of Pennsylvania, an M.Sc. (Summa Cum Laude) in computer science in 1994 and B.Sc. (Summa Cum Laude) in mathematics and computer science in 1992 from the Hebrew University of Jerusalem. He received a European Research Council Starting Grant. He has been named to the Simon School Dean’s Teaching Honor Roll numerous times.
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