Hard-to-Borrow Stocks and Stock Loan Fees as a Proxy

Summary

The question asks whether hard-to-borrow stocks have distinctive equity return behavior and mentions short-covering as a possible reason for rallies. The accepted response points to research on shorting demand and return predictability, noting that stock loan fees may serve as a proxy for how difficult a security is to borrow. This offers a research lead for studying borrow constraints alongside stock returns.

The response does not summarize the cited paper’s methods, sample, findings, or conclusions, and it does not establish that hard-to-borrow stocks reliably rally. Loan fees are presented only as a possible proxy, not as a complete measure of borrow availability or short-covering demand. The discussion is therefore a starting point for further investigation rather than empirical evidence that can directly support a trading rule.

Key ideas

• Stock loan fees may be used as a proxy for how difficult a stock is to borrow.
• Research on shorting demand and return predictability may inform analysis of hard-to-borrow securities.
• The response provides a citation lead but does not report empirical findings or establish a return pattern.
• Borrow difficulty and short-covering should be treated as hypotheses requiring direct testing.

Tags

# What is the relative performance of hard-to-borrow securities?


# What is the relative performance of hard-to-borrow securities?












Is there any research on the equity return performance of hard-to-borrow securities?

Many shops will simply screen for hard-to-borrow and eliminate these names from their short book.

Anecdotally, it seems that these names have a tendency to rally on account of short-covering effects and future demand. I know there is research on 'short interest %' as a quant equity factor, but is there any research on the performance of hard-to-borrow securities?

## Answer by user915 (score 3, accepted)

https://quant.stackexchange.com/a/3892

I think this paper (which I skimmed once a long time ago and no longer have access to) may provide some insight:

Cohen, Lauren, Karl B. Diether, and Christopher J. Malloy. "Shorting Demand and Predictability of Returns." Journal of Investment Management 7, no. 1 (2009): 36-52.

It seems to consider stock loan fees which may be a proxy for "hard to borrow".

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.