We study the role of private information in the equity lending market in a rational expectations model with endogenous loan fees. When all investors are privately informed, an increase in information precision reduces the fee by increasing trade aggressiveness and decreasing demand dispersion. However, when some investors are uninformed, the information asymmetry tends to increase the fee, and, thus, the overall effect of an increase in precision is ambiguous. We show that the fee can be incrementally informative given the stock price and that fee opaqueness tends to increase the fee but has an ambiguous effect on the stock price.

We study the relation between severe investor disagreement and stock returns based on the observed short-interest and long positions of hedge funds. We show strong disagreements are prevalent among active, sophisticated investors. From 1997 to 2014, 30% of highly shorted stocks have high hedge fund ownership, but these stocks do not earn abnormal returns. Evidence shows that large simultaneous holdings of short sellers and hedge fund managers likely arise from their information-acquisition activities. Although active long or short positions on average predict subsequent stock returns, neither long investors nor short sellers consistently prevail when the two sides disagree.