Stock Price Crashes and Lending Market Condition
Prof. Rachel MA
Associate Professor in Finance
FBA, UM
Date: 29 October 2024 (Tuesday)
Time: 13:00 to 14:00
Venue: FBA Lobby
Abstract
Our study reveals that stock price crashes are positively associated with lagged stock lending fees, with this link significantly amplified for stocks with high prior returns, suggesting bubble-led crash patterns under limits-to-arbitrage. This crash risk is particularly pronounced for firms with lower absolute earnings surprises, lower levels of short interest, and heightened information uncertainty. These findings are robust across alternative measures of crash risk and lending market conditions. To address endogeneity concerns, we employ a difference-in-differences approach based on the Reg-SHO Pilot Program and a fuzzy regression-discontinuity design using Russell Index reconstitution, providing robust support for our core results.
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