Abstract
This paper exploits the unique experimental setting created by nearly 1,300 single stock futures listings on the OneChicago exchange between 2003 and 2009, to investigate the impact of derivatives introductions on the tightness of short sale constraints facing their underlying assets. After controlling explicitly for supply and demand conditions in the stock lending market, this experiment reveals a precipitous decline in loan fees and in active utilization rates in the lending market, subsequent to the futures introductions. The evidence supports the view that derivatives provide a viable alternative short selling venue and that they relax short sale constraints facing their underlying assets.
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