To Lend or Not to Lend

This paper reviews the academic literature on securities lending to assess its impact on asset prices, fund performance, and market efficiency. Drawing on evidence from more than 20 peer‑reviewed studies, the analysis separates the effects of short‑selling demand from lending supply and examines how each influences returns and market functioning. The literature consistently finds that high short‑selling demand is associated with negative future returns, while increased lending supply does not harm asset performance and can improve market efficiency by alleviating short‑sale constraints. Overall, the evidence suggests that securities lending, when properly structured, does not detract from fund performance and can enhance market efficiency without imposing meaningful performance costs on long‑term investors.