Investors can profit from 'borrowing' shares

A financial expert has been discussing the practice of short-selling, which offers a way for investors to try and profit from short-term decreases in prices by essentially borrowing shares.

Speaking on the Cambridge Judge Business School podcast, Dr Pedro Saffi, a professor at the University of Cambridge, explained that there is nothing illegal or unethical about borrowing shares.

"In this particular case, borrowing shares tends to be very cheap for the large majority of firms in the United States and in the UK," he said.

However, Dr Saffi did warn: "Of course, there is always scope for market manipulation."

He added that the process of borrowing shares can shed light on the economic behaviours of institutional investors.

According to Dr Saffi, it is important that the process remains very transparent and that institutional investors are made aware that even though they can make money by lending their shares to someone, they will be unable to vote at this time.

He has previously said: "Often when people have to decide whether they are willing to vote - the record date - they have no idea what the vote is for. Our suggestion is that shareholders' understanding should be greatly improved so that they can decide whether to vote or not."ADNFCR-2318-ID-801247734-ADNFCR