Title: Effect of security lending and borrowing on market volatility, evidence from Indian stock market

Authors: Savitha G. Lakkol; G. Srilakshminarayana; K.B. Nalina

Addresses: JSS CMS, JSS Science and Technology University Mysuru, India ' SDM Institute for Management Development (SDMIMD), #1, Chamundi Hill Road, Siddhartha Nagar, Mysuru, India ' JSS CMS, JSS Science and Technology University Mysuru, India

Abstract: Securities lending and short selling are two major instruments used by emerging markets as a tool to enhance liquidity and efficiency. This paper focuses on security lending and borrowing (SLB) and volatility interdependence considering the prices of individual stocks and the stock market data. The purpose is to explain the causality between SLB trade in individual stocks, on volatility of both stocks and the market index. NSE Nifty stocks and Nifty index were considered and data was collated for a period of three years, between January 2017 and December 2019. Applying Granger causality, study finds that there is a bilateral causality between SLB trades and stock price volatility but the SLB trades do not impact the stock market return. Even in the long run SLB trades and individual stock return steady relationship. The study also tracks the development of SLB market in its present form since its introduction in the year 2010.

Keywords: security lending and borrowing; SLB; short selling; volatility; causality; panel Granger.

DOI: 10.1504/IJBG.2024.140579

International Journal of Business and Globalisation, 2024 Vol.38 No.1, pp.15 - 27

Received: 03 Mar 2020
Accepted: 18 Oct 2020
Published online: 28 Aug 2024 *

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