Using proprietary data on stock loan fees and stock loan quantities from a large institutional investor, Cohen, Diether, and Malloy examine the link between the shorting market and stock prices.

• Position: Conferences

Using proprietary data on stock loan fees and stock loan quantities from a large institutional investor, Cohen, Diether, and Malloy examine the link between the shorting market and stock prices. Using a unique identification strategy, they are able to classify shifts in the supply and demand for shorting. They find that shorting demand is an economically and statistically important predictor of future stock returns. The magnitude of this effect is large: an increase in shorting demand leads to negative abnormal returns of 2.54 percent in the...