Accounting for Historical Stock Borrow Costs in Long-Short Backtests

Summary

The document discusses how to account for stock borrow costs when backtesting a long-short strategy. It distinguishes ordinary general-collateral borrowing from individual stocks that may be hard to borrow or trading on special. For general collateral, the response suggests using a benchmark funding rate as a rough proxy. For specific names, it identifies historical equity repo rates as the more direct measure and notes that prime brokers or data vendors may provide access, though readily available historical coverage is uncertain.

A second proposed estimation route uses historical options prices: borrow and lending rates can be inferred from reversal and conversion positions. These are alternative ways to source or estimate financing inputs, not a guarantee of complete historical data. The document does not specify a provider, discuss costs or coverage in detail, or validate the proxy against realized borrow fees. Backtests should therefore treat the suggested general-collateral assumption cautiously and account for name-specific availability where possible.

Key ideas

• Short-sale fees can materially affect the realism of long-short backtests.
• A benchmark funding rate may serve as a rough proxy for general-collateral borrow costs.
• Historical equity repo rates are a more direct source for stocks that trade on special.
• Prime brokers and data vendors may provide historical repo data, but availability is uncertain.
• Options prices can be used to infer borrow and lending rates through reversals and conversions.

Tags

# Historical stock borrow fees


# Historical stock borrow fees












To properly backtest long/short strategy one must have data on what the short loan fees were/are. Is there any decent data source for that?

## Answer by AlRacoon (score 4)

https://quant.stackexchange.com/a/38388

If you are talking about borrow rates for general collateral, you can probably just assume you are borrowing at LIBOR.

If you are looking at individual names that may have been on special, the most direct way is to have historical equity repo rates. However I am not sure where one can find these historical rates readily. You may be able to access this data if you have a good relationship with a prime broker. Data service providers like Markit may offer this data.

Alternatively, one could use the derivatives markets to back out borrow rates. For example, if one has access to historical options prices on individual stocks, one could back out the borrow and lending rates implied by the reversals and conversions.

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