Testing the effects of short-selling restrictions on asset prices is challenging: shifts in stock lending supply usually are not observed directly. This paper takes advantage of a unique dataset that contains actual shifts in the lending supply curve for several stocks on the Brazilian market....

“Focus on the downside, and the upside will take care of itself” is a famous quote among professional investors. By considering an agent who follows this advice, we reproduce the first and second moments of stock returns, risk-free rate and consumption growth. The agent's behavior toward...