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Hard to Borrow vs. Easy to Borrow: Insights from Japan’s Centralized Lendable Stock Market

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  • Mostafa Saidur Rahim Khan

    (School of Economics, Hiroshima University, Higashi Hiroshima 739-8525, Japan)

Abstract

This study examines stock borrowing costs in Japan’s centralized lendable stock market, focusing on differences between ‘hard-to-borrow’ and ‘easy-to-borrow’ stocks over six months of daily data. This study employs a comprehensive methodology to examine metrics such as the short interest ratio, borrowing costs, institutional ownership, price-to-book value ratio, and new stock borrowing patterns. Regression models are utilized to explore the relationships between these factors and borrowing costs. The findings reveal that ‘hard-to-borrow’ stocks are associated with higher short interest ratios, borrowing costs, price-to-book ratios, and turnover but exhibit lower institutional ownership compared to ‘easy-to-borrow’ stocks. Notably, institutional ownership negatively correlates with borrowing costs across both categories, while the short interest ratio positively correlates with borrowing costs only for ‘hard-to-borrow’ stocks. Contrary to expectations, ‘hard-to-borrow’ stocks do not underperform despite elevated borrowing expenses, suggesting that these costs do not deter short selling activities in the Japanese market. The findings of this study offer key implications for investors and regulators. For investors, understanding the factors influencing borrowing costs aids in optimizing short-selling strategies. For regulators, the results highlight the role of centralized lendable stock markets in enhancing pricing efficiency without hindering trading activities.

Suggested Citation

  • Mostafa Saidur Rahim Khan, 2025. "Hard to Borrow vs. Easy to Borrow: Insights from Japan’s Centralized Lendable Stock Market," IJFS, MDPI, vol. 13(1), pages 1-14, February.
  • Handle: RePEc:gam:jijfss:v:13:y:2025:i:1:p:16-:d:1581921
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    References listed on IDEAS

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    1. Karl B. Diether & Kuan-Hui Lee & Ingrid M. Werner, 2009. "Short-Sale Strategies and Return Predictability," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 575-607, February.
    2. Asquith, Paul & Pathak, Parag A. & Ritter, Jay R., 2005. "Short interest, institutional ownership, and stock returns," Journal of Financial Economics, Elsevier, vol. 78(2), pages 243-276, November.
    3. Truong X Duong & Zsuzsa R Huszár & Ruth S K Tan & Weina Zhang, 2017. "The Information Value of Stock Lending Fees: Are Lenders Price Takers?," Review of Finance, European Finance Association, vol. 21(6), pages 2353-2377.
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