Informed securities lending: evidence from structured finance

We study the information content of the supply side of the securities lending market by asking two questions: first, whether the supply of lendable securities reflects information about fundamentals; and second, what the source of that information might be. Focusing on structured finance securities, where short selling is limited and loan-level performance is observable, attenuating potential confounding effects, we find that decreases in lendable amounts predict worsening performance. Additional tests suggest that lenders may have access to information not available to other investors, potentially acquired through interactions with lending intermediaries, such as custodians.