Does it make sense to lend securities to speculators who are driving down prices and contributing to the volatility in the markets? Sure, the revenue from lending is nice, but if security lending pushes down stock prices, the net contribution maybe negative. EFF: The evidence that short-sellers actually know something about market prices is weak. And even if they do, they only push prices more quickly to lower equilibrium levels, so they have little effect on the returns of long-term investors. (Read the full entry)
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