Why do securities lending costs decide which anomalies are tradable?

Faizan Wajid, Research Analyst (London)

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Between 2006 and 2020, US short sellers paid an average fee of 1.64% a year, rising to 30% for the most expensive names. In this literature review, we examine a paper that finds that across 162 anomalies, profit and borrowing costs are nearly identical in magnitude. We cover the data used, the findings and the limitations and then highlight various securities finance datasets for readers looking to recreate this study.