Work

The Cost of Short‐Selling Liquid Securities

Year: 2012

Type: article

Abstract: ABSTRACT Standard models of liquidity argue that the higher price for a liquid security reflects the future benefits that long investors expect to receive. We show that short‐sellers can also pay a net liquidity premium if their cost to borrow the security is higher than the price premium they collect from selling it. We provide a model‐free decomposition of the price premium for liquid securities into the net premiums paid by both long investors and short‐sellers. Empirically, we find that short‐sellers were responsible for a substantial fraction of the liquidity premium for on‐the‐run Treasuries from November 1995 through July 2009.

Source: The Journal of Finance

DOI: 10.1111/jofi.12009

Authors: SNEHAL BANERJEE, JEREMY J. GRAVELINE

Institutions: University of California San Diego, Northwestern University, University of Minnesota

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2148472205

FWCI: 9.537

Cites: 32

Cited by: 64

Related to: 10