The Power of Equity Loan Fees

Today we are joined by the Professor of Finance at the University of Utah, Matt Ringgenberg to discuss everything related to anomaly returns. Matt’s research – mainly centred on the actions of short sellers – has been published in all the major journals including the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. We begin with the definition of an asset pricing anomaly before learning about the anomalies that Matt’s research is primarily focused on. Then, we unpack anomaly returns and how they relate to anomaly signal information, what causes anomalies, the risk versus mispricing debate, and the barriers to accessing financial data that allow anomalies to persist. We also weigh Matt’s research against its anomaly-denying counterparts, assess anomaly behaviour before and after publicly available signal information, explore models that help to predict future anomalies, and learn more about the economic mechanism underlying asset pricing anomalies. To end, we dive into Matt’s paper, ‘The Loan Fee Anomaly’ and explore the relationship between cross-sectional predictors and market returns, and Matt explains why long-term happiness is the only true marker of success. 

Key Points From This Episode:

(0:05:07) Matt Ringgenberg defines an asset pricing anomaly and describes the anomalies his research is focused on. 

(0:06:27) When anomaly returns appear relative to the release of anomaly signal information.

(0:07:57) How the annual forming of portfolios in June affects anomaly returns. 

(0:08:50) The cause of anomalies, and the risk versus mispricing debate on anomaly returns.  

(0:10:35) Unpacking the barriers to accessing financial data that allow anomalies to persist.  

(0:13:41) How Matt’s rebalancing approach could affect anomaly-denying research.

(0:14:37) Applying his work to valuation-based anomalies and to investors capturing anomaly returns in live-traded portfolios.  

(0:16:04) How anomalies behave before anomaly signal information is publicly available.

(0:17:48) Exploring the models that can be used to predict future anomaly signals. 

(0:19:05) How anomaly premiums traded on predicted signals compare to trades on actual information release dates.

(0:19:37) Understanding the economic mechanism underlying asset pricing anomalies.

(0:24:38) Dissecting one of Matt’s short-selling papers, ‘The Loan Fee Anomaly’.

(0:32:51) The relationship between cross-sectional predictors and market returns.

(0:39:11) What Matt hopes to pass on to his students in his Introduction to Investments course.

(0:40:48) How Matthew Ringgenberg defines success.

Links From Today’s Episode:

Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://x.com/MarkMcGrathCFP

Matthew Ringgenberg on Google Scholar — https://scholar.google.com/citations?user=NArgYXUAAAAJ 

Matthew Ringgenberg on LinkedIn — https://www.linkedin.com/in/matthewringgenberg/ 

Matthew Ringgenberg on X — https://x.com/Ringgenberg_M 

University of Utah — https://www.utah.edu/ 

Davidson Heath on LinkedIn — https://www.linkedin.com/in/davidson-heath-5a28999a/  

Management Science — https://pubsonline.informs.org/journal/mnsc 

Journal of Financial and Quantitative Analysis — https://jfqa.org/ 

Morningstar Direct — https://www.morningstar.com/business/brands/data-analytics/products/direct 

YCharts — https://ycharts.com/ 

Andre Chen — https://andrewchen.substack.com/ 

David Booth | Dimensional Fund Advisors — https://www.dimensional.com/hk-en/bios/david-booth 

Papers From Today’s Episode: 

‘A Conversation with Benjamin Graham’ — https://www.jstor.org/stable/4477960

‘The Loan Fee Anomaly: A Short Seller's Best Ideas’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3707166 

‘Do Cross-Sectional Predictors Contain Systematic Information?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3459229