We analyze a framework for understanding the impact of the equity lending market on share prices. Using very few assumptions, we show that the effect of shocks to the supply or demand for share ownership, the fraction of shares made available to short sellers by shareholders, short sale...

Using microdata on stock-level lending positions from German mutual funds, we show that active funds use the equity lending market to obtain information about short sale demand. Funds reduce long positions in response to these demand signals, which allows fund managers to front-run public...