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Do investors learn from prices? Evidence from the securities lending market
Paula Cocoma1, Christian Skov Jensen2
1Frankfurt School of Finance and Management, Germany; 2Bocconi University, Italy
Discussant: Patrick Schwarz (HEC Liege)
Using stock-level data from the securities lending market, we investigate how financial markets process information. Our key empirical innovation is to use demand increases in the securities lending market to pin down the arrival of information. A premise that we motivate theoretically and validate empirically using state-of-the-art metrics for informed trading. We find that, when a stock experiences an increase in its shorting demand, the return volatility and its correlation with trading volume increase while the price informativeness decreases. These findings align with a differences-of-opinion model where overconfident investors trade so aggressively on their perceived increases in information that prices reveal less about fundamentals. Our results remain after excluding public announcements, highlighting the securities lending market’s role in private information.
2:30pm - 3:00pm
Price pressure during central bank asset purchases: Evidence from covered bonds
Philipp Lentner
WU Vienna, Austria
Discussant: Paula Cocoma (Frankfurt School of Finance and Management)
This article evaluates the impact of the European Central Bank's (ECB) third covered bond purchase program (CBPP3) on yields, issuance and portfolio positions using a matched difference-in-difference estimation. The CBPP3 is estimated to reduce yields for euro area issuers, relative to non-euro area issuers. In contrast, it appears to have stimulated issuance in both regions. From a demand-side perspective, bank investors exhibit the least elastic demand; an increase in their ex-ante investor share is associated with greater yield and issuance impact. Euro area banks buy and hold covered bonds relatively inelastically, as they can pledge them as collateral in ECB repos to obtain cash.
3:00pm - 3:30pm
Rewriting CRSP's history: Impact of altered monthly returns on asset pricing
Patrick Schwarz1, Dominik Walter2, Patrick Weiss3
1HEC Liege, Belgium; 2University of Konstanz, Germany; 3Reykjavik University, Iceland
Discussant: Philipp Lentner (WU Vienna)
In January 2025, CRSP discontinued the existing CRSP tape used in many published papers. This transition rewrites 9.62% of monthly returns by more than one basis point, primarily due to a change in the dividend reinvestment assumption. The mean absolute change equals 22 basis points. Analyzing the impact of these changes for a comprehensive set of premia in several thousand sorting specifications reveals that, on average, 11.43% of all monthly long-short returns differ by more than ten basis points. Reassuringly, these differences do not translate into significant changes in (time-series) average premia or their significance. However, these changes potentially affect conditional analyses on return-based premia, dividend-paying industries, NBER recession periods, and samples prior to 2000.
