Using Synthetic Borrow Intensity Changes to Time SPY Returns

Summary

The document describes a market-timing signal based on changes in aggregate synthetic borrow intensity, estimated from options prices for a broad set of stocks and ETFs. Borrow intensity is defined as the risk-free rate less the lending fee, so its movement is used as an indirect gauge of shorting costs and sentiment. The cited research reports a positive relationship between the daily change in aggregate intensity and the next day’s SPY return, with a correlation of 0.137 and a t-statistic of 4.17.

The stated rule calculates the change between consecutive days, measures it near the close, and takes a long SPY position when the change is positive or a short position when it is negative. Positions are opened shortly before the close and exited near the following day’s close. The reported effect reverses over the next two days and is strongest during the cited crisis periods; it trails passive investment in calmer periods. The proposed sentiment and liquidity explanations remain hypotheses, and the page gives limited detail for evaluating implementation costs or robustness.

Key ideas

• Aggregate synthetic borrow intensity is calculated as an equal-weighted average across the sampled securities.
• A positive daily change in aggregate intensity is associated with a positive next-day SPY return in the cited study.
• The described strategy takes a long or short SPY position according to the sign of that change.
• The reported effect fades and reverses over the following two days.
• The study reports stronger performance during crisis periods and weaker relative results in calm periods.

Tags

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