A dynamic model for hard-to-borrow stocks

Recent moves by regulators to put restrictions on short selling financial stocks have had many repercussions for financial markets. Such restrictions are known to lead to overpricing, in the sense used by Jones & Lamont (2002) - stock prices have been 'pumped up' by forced buying of short positions in the market - and have increased market volatility.


The availability of stocks for borrowing depends on market conditions. Firms usually charge a fee, often in the form of

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